Birdtalk 2014 Yearend

January 23, 2015University of the Philippines

Diliman, Quezon City

yearenD 2014:

Aquino on Defensive

Economic andPolitical BriefingBirdtalk

114 Timog avenueQuezon City 1103 PhilippinesTel. nos: +63 2 927-7060 to 61Fax: +63 2 929-2496www.ibon.org

IBONEconomicandPoliticalBriefing 23 January 2015 3

A slowing economy, intensifying social unrest and people’s opposition have pushed the Aquino administration into a defensive position in 2014. Severe inequality amid elite economics and governance as well as deepening corruption have steadily eroded the legitimacy of the

Aquino presidency. Faced with the unfavorable Supreme Court (SC) decisions on pork barrel and the Disbursement Acceleration Program (DAP), the Aquino administration sought to clip the powers of the high court through Charter change and even floated the possibility of term extension. But the public outcry over this proposal removed any remaining belief that the administration was still enjoying broad support. The Aquino administration has resorted to early electioneering to discredit its political opponents and secure an Aquino-backed successor in 2016. It has also brought its level of subservience to US interests and businesses to greater heights. The use of political repression against critics and grassroots movements on the other hand has been on the rise.

Fading Economic MiracleThe steady unraveling of the hyped Philippine economic miracle in 2014 weakens the Aquino administration even on its acclaimed economic front. The slowing of growth after just two years of a relatively rapid pace draws attention to the economy’s still unsound fundamentals. Severe inequities still stifle it and there is still no solid base in domestic production, incomes and demand. Unemployment and poverty persist because government policies avoid the politically difficult but nonetheless necessary structural changes. Slowing growth and these other problems will continue through 2015 and, absent the necessary radical change in the country’s politics, carry over into the next administration.

Slowing growth

Economic growth is the administration’s banner indicator of progress and development. However the decelerating economy in 2014 points to how the recent episode of rapid growth is artificial and unsustainable. The main sources of above-average growth of real estate and construction started to play themselves out without having laid any foundations for future continued expansion or, much less national socioeconomic development.

There are new short-term drivers of growth in 2015: mainly cheaper oil, some increased public infrastructure spending, and ripples from the United States (US) economy. Overseas remittance and business process outsourcing (BPO) inflows will continue but will be slower than before with a lessened impact on the economy. All told, the growth slowdown from its peak in 2013 will most likely continue in 2015 with growth drivers more than offset by the steady inhibiting influence of economic backwardness. There will likewise be little improvement in the socioeconomic indicators that matter most to the people.

Economic growth slowed because the main sources of growth are playing themselves out. The government’s preferred indicators of progress have been growth in the gross domestic product (GDP), moderating public deficits and debt, corresponding ratings upgrades, and growing foreign investment. The administration particularly favored economic growth, which increased from 3.7% (2011) to 6.8% (2012) and then 7.2% (2013). This slowed to 5.8% in the first three quarters of 2014, which will result in a full year figure much less than in 2013 and government targets for the year. (See Table 1) The latest Development and Budget Coordination Committee (DBCC) projected growth in 2015 of 7-8% is also unlikely to be achieved.

4 IBONEconomicandPoliticalBriefing 23 January 2015

Industry Group / Expenditure Share 2012 2013 2014 Q1-Q3

By Industry Group

1. Agriculture, Hunting, Forestry and Fishing 2.8 1.1 0.6

a. Agriculture, Hunting, Forestry 3.6 1.2 1.1

b. Fishing (0.4) 0.7 (1.7)

2. Industry Sector 7.3 9.3 6.9

a. Mining and Quarrying 2.2 1.2 5.6

b. Manufacturing 5.4 10.3 8.4

c. Construction 18.2 9.6 4.3

d. Electricity, Gas and Water Supply 5.3 4.9 2.4

3. Service Sector 7.4 7.2 6.1

a. Transportation, Storage, and Communication 8.1 5.6 6.7

b. Trade and Repair of Motor Vehicles, Motorcycles,

Personal and Household Goods7.6 5.7 6.1

c. Financial Intermediation 8.2 12.6 6.5

d. Real Estate, Renting and Business Activities 6.4 8.7 8.0

e. Public Administration and Defense:

Compulsory Social Security5.7 3.8 1.3

f. Other Services 7.6 7.1 5.3

By Expenditure Share

1. Household Final Consumption Expenditure 6.6 5.7 5.6

2. Government Final Consumption Expenditure 15.5 7.7 (0.2)

3. Capital Formation (5.3) 29.9 4.2

a. Fixed Capital 10.8 11.9 8.6

i. Construction 17.4 10.4 5.4

ii. Durable Equipment 7.0 15.5 12.1

iii. Breeding Stock and Orchard Development 1.4 (4.0) (2.8)

iv. Intellectual Property Products 17.5 16.4 22.3

4. Exports of Goods and Services 8.5 (1.1) 11.1

a. Export of Goods 10.3 0.1 11.1

b. Export of Services 2.1 (5.7) 11.4

5. Less: Imports of Goods and Non-Factor Services 4.9 5.4 6.2

a. Import of Goods 3.0 4.2 2.7

b. Import of Services 13.0 10.3 20.8

Gross Domestic Product 6.8 7.2 5.8

Gross National Income 6.4 7.5 6.5

Table 1. National Accounts of the Philippines By Industry Group and By Type of

Expenditure, 2012 - 2013 and 2014 Q1-Q3 (growth rates; at constant 2000

prices; in %)

Source: Philippine Statistics Authority-National Statistical Coordination Board National Accounts of the Philippines


The economy’s main growth drivers for the last 4-5 years have been real estate and construction and also business process outsourcing (BPO), trade, tourism, and overseas Filipino-related inflows.These interact with each other where BPOs increased demand for commercial real estate, remittances increased demand for residential property, tourism drove construction of restaurants and accommodation, and so on.

The slowdown is happening in the absence of any major economic or political shock, which tends to indicate that the problem is not exogenous but rather in the nature of the growth sources themselves – specifically, in how despite growing rapidly for a relatively long period they did not build momentum for the economy and instead are tapering off on their own.

The slowdown will have the effect of making the pattern of economic growth under the Aquino administration broadly similar to those of recent administrations – growth picking up at the start of the term, peaking somewhere mid-term, and then slowing as the end of the term approaches. (See Chart 1) The end of the Corazon Aquino, Ramos and Arroyo terms were each marked by external economic shocks with the 1990-1991 global recession, 1997 Asian financial crisis, and the 2008 global financial and economic turmoil. The absence of a similar adverse shock last year and so far even in 2015 is additional support for the notion that the growth sources are tapering off on their own.

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Q1-

Q3

Chart 1. Growth Rate of Gross Domestic Product and

Average Per Administration, 1986-2013 and 2014 Q1-Q3 (at constant prices; in %)

Year


Corazon Aquino

3.6%

(Q1 1986-Q2 1992)

Fidel Ramos

3.7%

(Q3 1992-Q2 1998) Joseph Estrada

2.7%

(Q3 1998-Q4 2000)

Gloria Arroyo

4.7%

(Q1 2001-Q2 2010)

Benigno Aquino III

6.0%

(Q3 2010-Q3 2014)

The undue hype around growth and sovereign creditworthiness distracted attention from how other mainstream economic indicators are not moving as favorably. Since 2010, savings rates have fallen (from 32.7% of gross national income or GNI to an average of 30.2% over the period 2011-2013) and capital formation has fallen (from 17.3% of GNI to an average of 17.0% over the period 2011-2013, and then 16.9% in the first three quarters of 2014). Revenue effort and tax effort have been slowly rising since 2010 but they are still below recent peaks under the previous administration – the revenue effort of 14.9% of GDP in 2013 is lower than the 16.5% achieved in 2007, and the tax effort of 13.3% in 2013 is lower than the 13.6% in 2008. Growth in per capita GDP also slowed last year despite slower population growth.


The real estate and construction boom, which has been the biggest growth driver of recent years, is showing signs of winding down. The real estate and construction boom appears to have started to unwind as the market for residential and office space tapers off, as overseas remittances slowed, as the Bangko Sentral ng Pilipinas (BSP) takes measures to prevent a real estate bubble, and as interest rates start to rise. Overseas worker- and BPO-related demand continues but not at its previous pace.

The economy’s rapid growth has been mainly driven by the real estate and construction boom including its knock-on effects in a few related manufacturing subsectors. Up until as late as 2013, the fastest growing sectors driving the most growth in the economy were real estate, renting and business activities, construction, and manufacturing; financial intermediation including in real estate products also grew rapidly.

Four manufacturing subsectors are particularly real estate- and construction-related: chemical and chemical products, basic metal industries, non-metallic mineral products, and furniture and fixtures. The chemicals subsector produces chemical-based products such as paint, wood and cement additives, insulation and other such items used in construction. Similarly, the basic metal subsector produces steel products used as structural materials, while the non-metallic mineral products subsector produces concrete, cement, plaster, glass and other like materials.

The apparent winding down of the real estate and construction boom is reflected in the marked slowdown in most of these sectors in 2014. (See Table 1) The real estate, renting and business activities subsector slowed in each of the first three quarters of 2014 to a lower 8.0% in the first nine months from 9.1% in the same period the year before; BPOs are counted under ‘business activities’ but the signs are that the slowdown was more in real estate than in BPOs. Construction meanwhile slowed to 4.3% in the first nine months of 2014 from 16.0% in the period before. Much of this was due to the drop in public construction but private construction also slowed significantly.

Up to four-fifths of manufacturing sector growth in gross value-added has been coming from its real estate- and construction-related subsectors. Growth in most of these dropped substantially in the first nine months of 2014 from the same period in 2013: chemical and chemical products (from 84.2% to just 2.4%), basic metal industries (from 65.5% to negative 2.2%), and non-metallic mineral products (from 13.5% to negative 8.7%). Growth in furniture and fixtures increased (from 24.8% to 43.8%) along with 15 other manufacturing subsectors, but these still could not offset the slowdown in those three real estate- and construction-related subsectors. The entire manufacturing sector still slowed from 9.6% to 8.4 percent.

The slowdown will likely be most felt in the National Capital Region (NCR), Central Luzon and Calabarzon where the boom has been most heavily concentrated. The latest available gross regional domestic product (GRDP) data for 2013 shows that a considerable 73.6% of the value of real estate, renting and business activities in GDP and 48.4% of construction are found in just these three regions. The NCR alone accounts for 52.9% of real estate, renting and business activities and 23.4% of construction.

GRDP data also confirmed the uneven distribution of recent growth. NCR, Central Luzon and Calabarzon (with Central Visayas, and slightly, Caraga) all increased their share of GDP between 2009 and 2013. This was at the expense of the other 12 regions of the country which all saw their respective shares decrease over the same period.

The real estate and housing market may already be coming up against the wall of the country’s income pyramid and geographical inequity. The market for housing development has largely been the middle- and upper income classes with the disposable income for this – or the some 25% of families (around


4.7 million) with monthly incomes of about Php27,000 or more. After years of the boom, it is possible that most of the potential buyers from within this class have already entered the market; there are, for instance, already reports that the luxury or high-end of the market may have already peaked.

The remaining 14 million poorer low-income families do have considerable housing needs. As a group however, they do not have the purchasing power to make their housing needs felt on the market even with the low interest rates and low down payment requirements. There is also decreasing housing support forthcoming from the government where the national budget for housing and community development has dropped from Php32.2 billion in 2013 to just Php10.3 billion for 2015. Low household incomes outside NCR will likely hinder real estate expansion in other regions. NCR had a per capita GRDP at current prices of Php342,170 in 2013. There is a big gap between NCR and the country’s second richest region Calabarzon – whose per capita GRDP of Php135,579 is just 40% of NCR’s – and especially with the country’s poorest region ARMM whose per capita GRDP of Php29,608 is barely 9% of that in NCR.

The BSP reported Php751.3 billion in residential and commercial real estate loans of universal and commercial banks in June 2014, which was 9.1% higher than at the start of the year. Record-low interest rates have spurred the real estate and construction boom by reducing the cost of financing for developers and by making property cheaper for buyers or leasers. Interest rates remain low but started to rise incrementally in 2014, which may have already made marginal developments and properties more expensive. (See Chart 2) Total loans continued to rise in 2013. (See Chart 3)

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15.0

20.0

25.0

30.0

1986 1990 1995 2000 2005 2010 2014

Chart 2. Selected Domestic Interest Rates, 1986-November 2014

(in %)

Bank Average

Lending Rates

RRP Rates

(Overnight)

Interbank Call

Loan Rates

Year

RRP - reverse repurchase rate

Source: Bangko Sentral ng Pilipinas


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500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chart 3. Philippine Loans, 1986-2013* (in million Php)

Total Bank Loans Total UKB Loans Outstanding Of Which for Production Of Which to Real Estate

Year

* - 2013 data for Total UKB Loans Outstanding, Of Which for Production, and Of Which to Real Estate are as of November

UKB - Universal and Commercial Bank


There is pressure for the trend of higher interest rates to continue. Overseas, the US Federal Reserve is expected to increase interest rates in line with the improving US economy. Domestically, the BSP is taking measures to discipline real estate lending. These started with so-called stress tests announced in July 2014 to assess banks’ real estate exposure and their vulnerability to adverse movements in the sector. The BSP will this year also mandate banks to cap real estate loans at 60% of their collateral values from the current 80-90% range. Banks will moreover be required to have higher minimum capital as additional protection from real estate-related problems. Universal banks and commercial banks with over 100 branches will for instance be required to have a minimum of Php20 billion and Php15 billion, respectively. Rural banks, thrift banks and cooperative banks will likewise have higher minimum capital requirements. A major countervailing factor to higher rates though will be the expected lower inflation due to cheaper oil.

The slowdown in overseas remittances eventually translates into weaker property demand. Overseas Filipinos sent US$22.0 billion in cash remittances in the first 11 months of 2014. While the absolute amount remains high, its growth is notably slowing. Monthly year-on-year remittance growth since the start of 2014 has been slower compared to the previous year in nine out of the first 11 months, and cumulative remittance growth of 5.8% as of November is the lowest year-on-year growth since 2009. (See Chart 4) The remittance slowdown is also consistent with the reported slowing growth in compensation inflows (under net primary income) in the national accounts.

Remittance growth has markedly slowed to single-digit levels from its double-digits before the onset of the global financial and economic crisis in 2008-2009. (See Chart 4) Remittances remain large and will continue to account for a substantial and disproportionate portion of household consumption expenditure. They were for instance equivalent in value to, even if not strictly accounting for, 11.9% of household consumption expenditure in the first three quarters of 2014. The slowing growth however does indicate its limits and points to the need to more aggressively develop domestic sources of employment, incomes and demand. This is underscored by how the equivalent share of overseas remittances in GDP continues to fall after peaking in the latter half of the 2000s.


Production slowed in all major sectors and most subsectors. First to third quarter GDP growth slowed in the major sectors of agriculture, hunting, forestry and fishing (slowing to 0.6% growth from the same period last year), industry (6.9%) and services (6.1%), and specifically in eight subsectors representing over two-thirds (67%) of total GDP. (See Tables 1 and 2) These subsectors include fishing (negative 1.7%), manufacturing (8.4%), construction (4.3%), electricity, gas and water supply (2.4%), financial intermediation (6.5%), real estate, renting and business activities (8.0%), public administration and defense (1.3%), and other services (5.3%).

The slowdown in agriculture and manufacturing has the most significant implications for national development and is consistent with long-term trends. The initial 2014 annual data confirms that these vital sectors lack innate dynamism and remain in long-term decline.

Domestic final consumption, capital formation and exports all slowed. Domestic demand is ultimately limited by widespread poverty and low incomes. Against this basic backdrop, growth in household final consumption expenditure, government final consumption expenditure, and capital formation all slowed in the third quarter from the start of the year. By the third quarter: household final consumption expenditure was slower by 0.7 percentage points, government final consumption expenditure by 4.5 percentage points (actually going into negative growth), and capital formation by 5.9 percentage points.

Taking the first three quarters of 2014 as a whole sees growth in household final consumption expenditure unchanged from the previous year at 5.6%, government final consumption expenditure actually shrinking 0.2% (from 9.8% growth previously), and capital formation slowing drastically to 4.2% (from 33.7% in the same period last year). Household consumption accounted for 67.7% of GDP by expenditure, government consumption for 11.1%, and capital formation for 20.4 percent. (See Table 2)

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Chart 4. Overseas Remittances Growth and

Equivalent Share in Gross Domestic Product, 1991-2014* (in %)

Overseas Remittances, Growth Rate (in %) Overseas Remittances Equivalent Share in GDP (in %)

* - 2014 data based on 1st-3rd quarters only


2014Q1-Q3


Exports on the other hand seemed to recover strongly with 11.1% growth in the first three quarters of 2014 compared to a contraction of 2.2% in the same period the year before. Looking at the quarterly performance however shows what had been rapid export growth of 13.5% in the first quarter slowing as the year progressed to 9.8% in the third quarter. The first quarter growth was in any case starting from a low base. The impact of an export slowdown on the economy is moderated by the largest part of exports actually being in low value-added enclaves hardly integrated with the rest of the domestic economy.

Foreign demand is particularly dragged down by the protracted global economic crisis. In the first three quarters of 2014, some 85% of exports went to the country’s top 10 trading partners including Japan (22.9% of total exports), US (14.1%), China (13.3%), Hong Kong (8.7%) and Singapore (7.3%),

Industry Group / Expenditure Share 2012 2013 2014 Q1-Q3

By Industry Group

1. Agriculture, Hunting, Forestry and Fishing 11.1 10.4 9.6

a. Agriculture, Hunting, Forestry 9.0 8.5 7.9

b. Fishing 2.1 1.9 1.7

2. Industry Sector 32.2 32.8 33.0

a. Mining and Quarrying 1.1 1.1 1.2

b. Manufacturing 22.1 22.7 22.8

c. Construction 5.5 5.6 5.6

d. Electricity, Gas and Water Supply 3.4 3.3 3.4

3. Service Sector 56.7 56.8 57.4

a. Transportation, Storage, and Communication 7.6 7.5 7.6

b. Trade and Repair of Motor Vehicles, Motorcycles,

Personal and Household Goods16.7 16.5 16.2

c. Financial Intermediation 6.8 7.1 7.4

d. Real Estate, Renting and Business Activities 10.8 10.9 11.4

e. Public Administration and Defense:

Compulsory Social Security4.4 4.2 4.3

f. Other Services 10.5 10.5 10.6

By Expenditure Share

1. Household Final Consumption Expenditure 70.4 69.4 67.7

2. Government Final Consumption Expenditure 10.6 10.7 11.1

3. Capital Formation 18.3 22.1 20.4

a. Fixed Capital 20.4 21.3 21.7

i. Construction 8.4 8.6 8.6

ii. Durable Equipment 9.9 10.7 11.2

iii. Breeding Stock and Orchard Development 1.6 1.4 1.3

iv. Intellectual Property Products 0.5 0.6 0.6

4. Exports of Goods and Services 48.4 44.6 50.3

a. Export of Goods 38.4 35.9 40.7

b. Export of Services 9.9 8.7 9.6

5. Less: Imports of Goods and Non-Factor Services 47.6 46.8 48.6

a. Import of Goods 38.3 37.2 37.9

b. Import of Services 9.4 9.7 10.7

Gross Domestic Product 100.0 100.0 100.0

Table 2. National Accounts of the Philippines By Industry Group and By Type of

Expenditure, 2012 - 2013 and 2014 Q1-Q3 (share in GDP; at constant 2000

prices; in %)



among others. This trade profile should be interpreted cautiously though, because exports to these and other countries especially in the Association of Southeast Asian Nations (ASEAN) is actually just trade in intermediate goods along a global assembly line – or ‘value chain’ as it is currently fashionable to call – with final goods still destined for the slow-growing major US, European and Japanese markets representing 61% of the global economy. (See Charts 5 and 6)

Most of the world’s biggest economies are still facing major problems of weak demand, investment, employment and growth. Global growth was barely better in 2014 from the year before in the countries making up the largest share of the world economy.

The European Union grew a little faster at an estimated 0.8% in 2014 but is fettered by high unemployment and large sovereign debt so is seen to hardly grow in 2015. Japan slipped into recession again in the third quarter of 2014, grew at an estimated 0.1% in the whole of 2014, and is seen to barely improve to 0.6% this year. China’s economy continued to slow to 7.4% in 2014 – much below the sustained double-digit rates of previous years – and is facing growing domestic asset bubbles. Among the biggest advanced economies, only the US is seeing some improvement, however slight, with 2.4% growth in 2014 projected to increase to 3.6% in 2015, which is at least the fastest growth since 2005. The situation in Europe, Japan and China may however yet stifle this seeming US turnaround.

Unemployment in the Organisation for Economic Co-operation and Development (OECD) countries remains high and well above pre-crisis levels. Meanwhile the so-called BRICS (Brazil, Russia, India, China, and South Africa) continued to collectively slowdown and this year are projected to grow at their slowest pace in six years. The BRICS were for a time seen as an alternative growth center to the advanced capitalist powers.

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Real G

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Country

Chart 5. Real GDP Growth Rate of Selected Countries, 2013 (in %)

Source: World Bank World Development Indicators


United States

25.6% European Union

26.9%

Japan

8.5% China

8.6%

Russia

1.8%

India

2.6%

Brazil

2.1%

South Africa

0.6%

Association of

Southeast Asian Nations

2.4%

The rest of the world

21.1%

Chart 6. Share in Global GDP of Selected Countries, 2013 (in %)

Source: World Bank World Development Indicators

The most recent forecast of the International Monetary Fund (IMF) in its World Economic Outlook (WEO) Update of January 2015 revised global growth estimates downward to 3.5% for 2015, which is only a very marginal increase from the expected 3.3% growth in 2014. This already factors in the net benefit of cheap oil, which is seen as offset by other adverse factors mainly related to the persisting internal economic problems of many countries. Rather than recovering, the world capitalist economy is at the very least stagnating and may yet slide into a new downturn.

Lackluster government spending is not the main reason for the slowdown. While the government argued that lower than expected public spending was the culprit behind the slowing growth, this was a secondary and at most merely aggravating factor. This means that even if ramped-up government spending in 2015 boosts growth it will still not necessarily be addressing the main reasons for the slowdown. Agriculture for instance may still continue to slide especially if scant government resources continue to be directed to the sector.

The public sector factor is not enough to explain what has been a generalized economic slowdown felt across the economy including in sectors and subsectors hardly connected with government spending. (See Table 1) The idea may have been played up to divert from underlying problems as well as to indirectly assign blame to critics of the Priority Development Assistance Fund (PDAF), Development Acceleration Program (DAP) and presidential pork barrel.

The public sector is also not so dominant in the economy that a small drop in spending in the first three quarters of 2014 would have such repercussions. On the supply side, public administration and defense whose growth slowed to 1.3% only directly accounted for 4.3% of GDP. (See Tables 1 and 2) On the demand side, government final consumption expenditure which shrank by just 0.2% only accounted for 11.1% and public construction which shrank 3.5% accounted for just 1.6% of total expenditure.


All things equal, the slight uptick in projected government spending next year will contribute to growth in 2015. The national government budget increases by 15.1% to Php2.61 trillion in 2015 (compared to a 13.3% increase in 2014); less interest expenses, it increases by 16.8% to Php2.33 trillion (compared to a 14.2% increase in 2014). Assuming that the budget can be managed to be spent as proposed, national government disbursements will increase slightly to a projected equivalent of 18.5% of GDP in 2015 from a programmed 17.8% in 2014.

Most of the impact will be from the additional spending on transport infrastructure including on public-private partnership (PPP) projects. Though certainly necessary for a modern economy, the focus on big-ticket projects mainly in and around NCR can be questioned as reinforcing existing regional and urban infrastructure biases. There is also supposed to be spending for post-disaster reconstruction in Yolanda-affected Eastern Visayas and other disaster-struck areas. These are partial countervailing factors to the dampening effect on construction of a weaker real estate market.

The increased dependence of the Philippine economy on external sources of demand has to be rectified and domestic sources of demand prioritized and developed. Economic growth essentially reflects production in response to demand, so in this sense, it is demand that is the most proximate driver of an economy. The amount of effective demand and purchasing power is in turn determined by the level of production and how the gains from this are distributed. Gains are distributed in various ways: between workers and capitalists, between nearby and distant local economies, between domestic and foreign providers of inputs, and others.

Understanding economic growth in this way explains why domestic production from farms and Filipino industry is particularly important as the ultimate driver of demand and why services or externally driven sources are insufficient. The most important recent sources of growth need to be understood in this way. Real estate and construction, BPOs, trade, tourism and finance spurred growth in varying degrees as well as created wealth for a few. But they are poor quality sources of growth and still undesirable as main drivers of the economy in being circumstantial, self-limiting and not working for the poor.

They have weak multiplier effects. A growth source will be inclusive if it involves many workers and other sectors as providers or as recipients of goods and services. However, as had been discussed in more detail in the 2013 Yearend Birdtalk, the recent growth sectors are minimally connected with and do not build significant linkages with other parts of the domestic economy. Real estate and construction is geographically concentrated in Metro Manila and its surrounding provinces. BPOs are import-dependent activities with the main domestic value-added being cheap young Filipino labor and office space. Tourism generates local incomes but is still essentially a low productivity and low-input service activity.

They are also reliant on external factors rather than on a vibrant local economy. The problem with overseas remittances is not just its dependence on the availability of work abroad but also that remittances will never be an income flow higher than the salaries paid by foreign employers. This is very different from domestic production, which contributes to the economy not just the salaries paid but also the rest of the value of the good or service produced, the technology used to make these, and employment. It is a similar situation with overwhelmingly foreign capital-dominated BPOs whose only essential difference is that the operation is physically located in the Philippines rather than abroad.

The most fundamental weakness of recent growth sources however is that they did not contribute to building domestic agriculture or industry and if anything actually substituted for these. Such domestic production is necessary to create jobs and raise incomes, to develop Filipino technological capacity, and to strengthen internal sources of demand as the main drivers of growth. These are what extend the growth impulse and make it more sustainable.


2012 2014 AprilChange,

2012-Apr 20142012 2014 April

Change,

2012-Apr 2014

All Industries 333.82 365.89 32.07 256.59 263.44 4.16

Agricultural 166.74 181.53 14.79 128.16 130.70 2.54

Agriculture, Hunting and Forestry 165.27 180.96 15.69 127.03 130.29 3.26

Fishing 191.68 192.48 0.80 147.33 138.59 (8.74)

Industry 328.46 338.57 10.11 252.47 243.77 (8.70)

Mining and Quarrying 317.21 294.41 (22.80) 243.82 211.98 (31.84)

Manufacturing 330.03 345.39 15.36 253.67 248.68 (4.99)

Electricity, Gas and Water Supply a 553.79 502.58 (51.21) 425.66 361.86 (63.80)

Construction 310.65 323.61 12.96 238.78 233.00 (5.78)

Services 383.48 422.82 39.34 294.76 304.43 9.67

Wholesale and Retail Trade, Repair of

Motor Vehicles, Motorcycles and

Personal and Household Goods b

282.05 299.68 17.63 216.79 215.77 (1.02)

Hotels and Restaurants c 280.86 320.66 39.80 215.88 230.88 15.00

Transport, Storage and Communications d 449.88 498.37 48.49 345.80 358.83 13.03

Financial Intermediation e 579.26 638.57 59.31 445.24 459.77 14.53

Real Estate, Renting and Business

Activities f 522.50 563.42 40.92 401.62 405.66 4.04

Public Administration and Defense,

Compulsory Social Security533.66 588.58 54.92 410.19 423.78 13.59

Education 677.62 750.33 72.71 520.85 540.24 19.39

Health and Social Work g 484.73 520.56 35.83 372.58 374.80 2.22

Other Community, Social and Personal

Activities h 275.91 291.41 15.49 212.08 209.81 (2.27)

Private Households with Employed

Persons i 114.41 123.25 8.84 87.94 88.74 0.80

Extra-Territorial Organizations and Bodies j 1,185.61 334.78 (850.83) 911.31 241.04 (670.27)

Sources: Philippine Statistics Authority-National Statistics Office Labor Force Survey as cited in Philippine Statistics Authority-Bureau of Labor and

Employment Statistics December 2013 Current Labor Statistics

f - Real Estate, Renting and Business Activities = "Real Estate Activities", "Professional, Scientific and Technical Activities" and "Administrative and Support

Service Activities"g - Health and Social Work = "Human Health and Social Work Activities"

h - Other Community, Social and Personal Activities = "Arts, Entertainment and Recreation" and "Other Service Activites"

i - Private Households with Employed Persons = "Activities of Households as Employers; Undifferentiated Goods and Services-producing Activities of

Households for Own Use"j - Extra-Territorial Organizations and Bodies = "Activities of Extraterritorial Organizations and Bodies"

3. Annual data are averages of the four survey rounds of the Labor Force Survey.

2. Industry grouping is in accordance with the 1994 Philippine Standard Industrial Classification (PSIC) for 2001-2011 and 2009 PSIC for 2012 and 2013.

However, average daily basic pay for certain industry groups for 2012 and 2013 were either computed or compared for the purpose of annual comparison:a - Electricity, Gas and Water Supply = "Electricity, Gas, Steam and Air Conditioning Supply" and "Water Supply; Sewerage, Waste Management and

Remediation Activities"b - Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles and Personal and Household Goods = "Wholesale and Retail Trade; Repair of Motor

Vehicles and Motorcycles"c - Hotels and Restaurants = "Accommodation and Food Service Activities"

d - Transport, Storage and Communications = "Transportation and Storage" and "Information and Communication"

e - Financial Intermediation = "Financial and Insurance Activities"

Table 3. Average Daily Basic Pay, 2012 and April 2014 (in Php)

Industry Group

At current prices At 2006 prices

Notes:

1. Excludes those paid on commission basis, honorarium and boundary as in the case of jeepney/bus/tricycle drivers.


Such a process certainly takes time and requires a strategic view, but there are also immediate growth-inducing measures. Given political will, immediate measures like free land distribution, farmer support and large wage increases can be implemented in a fairly short period of time. These will directly and indirectly expand the purchasing power of the country’s over 28.3 million farmers, wage and salary workers, low-paid employees and informal sector workers.

Low wages stifle domestic demand. There were over 21.4 million wage and salary workers in the country last year, according to the National Statistics Office (NSO). This is a potentially very large market whose demand for and consumption of various goods and services could spur economic activity. However this considerable potential is stifled by how the average daily basic pay in the country as of April 2014 is just Php365.89. (See Table 3) Such low pay greatly inhibits workers’ effective demand.

The government maintains a low-wage policy on various specious arguments such as maintaining competitiveness for foreign investors, that wage hikes are necessarily inflationary and that employers cannot afford a substantial wage hike. This low-wage policy is efficiently implemented by keeping the mandated minimum wage low to the point of not even being enough for workers and their families to live decently.

The NCR minimum wage is the highest minimum wage in the country but can still be taken as an example. (See Table 4) The minimum wage is to begin with less than half the estimated family living wage. This is aggravated by how wage hikes are so few and small that the minimum wage is barely even able to keep up with the rising cost of living – for instance even falling in real value since 2012.

Unfortunately the government has not only resisted meaningful wage increases but is actually taking steps to lower the received minimum wage through the shift to a so-called two-tier wage system, composed of a basic floor wage and a productivity-linked tier. This sets the floor wage too low at somewhere between official poverty thresholds (which are grossly underestimated) and average pay actually received (which only reflects what employers are willing to give); employers meanwhile can choose to forego the productivity tier. Implementation of the system advanced in 2014 with the Department of Labor and Employment (DOLE) reporting that 92 of 107 minimum wage rates in eight of 17 regions nationwide are Tier 1-compliant with the remainder due in 2015 and 2016.

Indicator Dec 2012 Dec 2013 Dec 2014

Daily NCR minimum wage (in Php) 456.00 466.00 466.00

Real minimum wage

(2006=100; in Php)363.64 362.36 356.54

Estimated family living wage (in Php) 1,033.17 1,059.53 1,076.84

Wage gap (in Php) 577.17 593.53 610.84

Daily NCR minimum wage

as Percentage of

Estimated family living wage (in %)

44.14 43.98 43.27

Table 4. Daily Wage Indicators for the NCR, December 2012-2014

Sources of basic data: National Wages and Productivity Commission, and Philippine

Statistics Authority-National Statistics Office


A substantial wage hike that will improve the welfare of workers, spur domestic demand and partially reduce inequality is possible. The country’s largest labor center, the Kilusang Mayo Uno (KMU), last year led various labor groups in launching an all-workers’ unity campaign for a Php16,000 national minimum wage. The minimum wage is a national wage counterposed to the current regionalized system that is seen to have facilitated rather than counter low wages.

IBON estimates that a Php16,000 minimum wage is, like the Php125 nationwide across-the-board wage hike demand it replaces, within the capacity of employers to give. Implementing this will only mean on average 17.1% cut in the profits of firms, which still leaves them with a considerable profit. (See Table 5) Accepting this slight reduction and not passing the slightly higher labor costs to consumers also means that the wage hike need not be inflationary.

Indicator Amount

Total number of establishments 36,699

Total number of employees 4,022,101

Proposed wage hike (in Php) 168.78

Additional per employee per month

(computed by EMR)5,133.73

Additional per employee per year

(13 months)66,738.43

Total profit (in billion Php) 1,573

Total cost of proposed wage hike

(in billion Php)268

Total profit less cost of proposed wage hike

(in billion Php)1,304

Cut in profits (in %) 17.1

Source of basic data: Philippine Statistics Authority-National

Statistics Office 2012 Census of Philippine Business and

Industry

Table 5. Estimated Cost of a Php16,000 National

Minimum Wage

*EMR -Equivalent Monthly Rate

Indicator Amount

Total number of establishments 36,699

Total number of employees 4,022,101

Proposed wage hike (in Php) 168.78

Additional per employee per month

(computed by EMR)5,133.73

Additional per employee per year

(13 months)66,738.43

Total profit (in billion Php) 1,573

Total cost of proposed wage hike

(in billion Php)268

Total profit less cost of proposed wage hike

(in billion Php)1,304

Cut in profits (in %) 17.1

Source of basic data: Philippine Statistics Authority-National

Statistics Office 2012 Census of Philippine Business and

Industry

Table 5. Estimated Cost of a Php16,000 National

Minimum Wage

The impact was estimated using establishment revenue/cost and employment data from the NSO Census of Philippine Business and Industry (CPBI) 2012 and latest available daily basic pay figures from the Labor Force Statistics. (See Table 5) Specifically, the impact was estimated by computing the needed increases in respective regional average daily basic pay to achieve a Php16,000 monthly rate and then weighting these by the distribution of wage and salary workers in 2013, resulting in a weighted average increase of Php168.78. This increase was then applied to total employment of establishments with employment of 20 or over according to the CPBI.

Higher wages are among the most effective means to improve the welfare of workers and their families and to make growth more inclusive. A meaningful wage hike moreover has dynamic and


multiplier effects on the economy. Transforming a portion of profits to higher wages is a concrete shift to domestic demand and wage-led growth, which is an internal and more sustainable source of economic growth than external markets, especially amid the protracted global crisis.

The transfer of money from rich to poor households increases aggregate demand and stimulates the economy. High-income households have a higher propensity to save and low-income households, which are lacking even in basic necessities, a higher propensity to consume. A peso will more likely be spent (and spent locally) than saved if this goes to a poorer household instead of a wealthier one.

This beneficial effect is further magnified by how low-income households have a greater tendency to purchase goods and services from the informal sector. This means that much more of every peso of additional wages going to low-income families will go to the informal sector of vendors, sari-sari stores, small eateries, jeepney and tricycle drivers, and others than if this peso were spent by high-income households on imported luxury goods, vacations abroad or the like. The informal economy especially in worker communities will then also benefit from a wage hike.

Micro, small and medium enterprises (MSMEs) will gain to the extent that they produce goods and services for the domestic market. The government could even complement this increased wage-driven demand by providing small producers with cheap and easy credit, giving marketing support, nurturing locally-integrated supply chains, and improving their scientific and technological capabilities. Over time, this will increase local production, generate jobs and enable higher wages in a virtuous and dynamic spiral.

The slowdown will be softened by the fortunate circumstance of low oil prices. Cheap global oil prices will temporarily boost the Philippine economy and partially allay its underlying weaknesses in 2015. The lower oil prices are expected to persist this year, which will be moderating the domestic slowdown, before rising marginally in 2016. Still, this support to economic growth is from an external and temporary factor rather than from the fundamentals of an improving domestic economy.

Oil is the Philippines’ single biggest source of energy and provides some 32% of its energy needs, according to the Department of Energy (DOE); over 95% of the country’s oil is imported, mainly from the Middle East and largely from Saudi Arabia and United Arab Emirates. Lower fuel prices, energy and transport costs will lessen inflationary pressures. The BSP will be more restrained with interest rate hikes, which helps domestic credit from becoming more expensive. A modest boost in trade-related sectors is also possible to the extent that exports to our major trading partners increase. The government will however lose a portion of its oil-related tax and other revenues, which could mean somewhat increased public debt.

Global oil prices have dropped steeply since September 2014. The price of Philippine benchmark Dubai crude for instance fell by some 45% from being US$108.01 per barrel in June to an almost six-year low of US$60.39 per barrel by December; benchmark crude prices continued to fall in the opening weeks of 2015. The Aquino administration had previously projected a much higher US$90-110 per barrel for 2015.

Oil prices are falling from a confluence of factors. There is still weak demand from a sluggish global economy (including by China, the world’s biggest net importer of oil) even as supply increases especially from the US (now the world’s biggest oil producer). The resulting tendency for falling global oil prices materialized and was affirmed with the decision in November by the Organization of Petroleum Exporting Countries (OPEC), the world’s largest oil cartel, to maintain oil production and supply at current levels.The OPEC decision has been interpreted as Saudi Arabia seeking to keep market share by stifling the US oil and gas production boom. However it has also been seen as


geopolitically motivated to undermine major oil producers unfriendly to the US in particular Russia, Venezuela and Iran. These big oil exporters are adversely impacted by falling oil export earnings and oil-related government revenues. Less foreign exchange means additional pressure on domestic currencies and interest rates which weakens growth, such as in Russia. Less government revenues means less funding for domestic programs such as social spending in Venezuela or fuel subsidies in Iran, which is an opportunity for any political opposition. Russia has been reported to rely on oil revenues for up to 45% of the government budget. A notable beneficiary from the cheaper oil is China – the world’s largest or second-largest economy, depending on how this is measured – which will get some stimulus from the correspondingly cheaper energy.

The impact of cheaper oil on the global economy as a whole should not be overstated though. It is likely only temporary while high production and supply is maintained. More importantly, among the major underlying reasons for the lower oil prices is sluggish global economic growth and demand from economic problems that will not be fixed merely by cheaper oil. Unexpected oil price shocks are also still possible such as from worsening conflict in the Middle East. And while it is also too early to tell it is possible that investment in new exploration and development – especially in unconventional and more expensive oil sources such as deep sea oil fields, shale and tar sands – will be affected which would increase price pressures in the future

The effect of pre-election spending on growth is uncertain and, if anything, previous pre-election years show that a slowdown despite such spending is more likely. The possibility has been raised that pre-election spending will boost growth in 2015 (and later in the first semester of 2016). There will certainly be additional election-related spending for various private campaign-related expenses above the ‘normal’ level of spending – for media, printing, transport, food, accommodation, communication and the like – as well as greater public spending by the incumbent to leverage its anointed successor.

Yet while this additional spending will contribute to growth, all things equal, it is a different matter to conclude that this necessarily means that growth will be faster in 2015 than in 2014. On the contrary, the experience in the last four presidential elections in 1992, 1998, 2004 and 2010 has more often been of a slowdown in the pre-election year rather than an uptick in growth. Real GDP growth was slower in 1991 (negative 0.6%) than 1990 (3.0%), slower in 1997 (5.2%) than in 1996 (5.8%), and slower in 2009 (1.1%) than in 2008 (4.2%); the only exception was when growth was faster in 2003 (5.0%) than in 2002 (3.6%).

This is not to say that election spending did not contribute to growth – only that whatever additional election-related spending contributed to growth, this has not been enough to ensure that growth accelerates in the pre-election year from the year before it. Other factors at play that may be more dominant include investor uncertainty before a change in administration – a factor heightened by how personalistic ties to political elites still matter so much for businesses – or exogenous shocks like global economic conditions and natural disasters. On the other hand, election years per se are generally more positive in terms of growth with 1992, 2004 and 2010 exhibiting faster rates than their respective previous years; 1998 was an exception with the Asian financial crisis inducing not just a slowdown but actually a contraction.

The country remains among the poorest performers in Southeast Asia. Philippine development performance still compares poorly with its ASEAN neighbors despite its growth being the fastest in the region. Recent trends in unemployment, poverty reduction and the human development index (or HDI, which is a composite of health, education and income indicators) are not comparatively exceptional, which is consistent with longer historical trends. (See Table 6)


Indicators and

ASEAN country2009 2010 2011 2012 2013

Real Gross Domestic Product

growth rates (in %)

Brunei Darussalam (1.8) 2.6 3.4 0.9 (1.8)

Cambodia 0.1 6.0 7.1 7.3 7.4

Indonesia 4.6 6.2 6.5 6.3 5.8

Lao PDR 7.5 8.5 8.0 8.0 8.5

Malaysia (1.5) 7.4 5.2 5.6 4.7

Myanmar - - - - nda

Philippines 1.1 7.6 3.7 6.8 7.2

Singapore (0.6) 15.2 6.1 2.5 3.9

Thailand (2.3) 7.8 0.1 7.7 1.8

Vietnam 5.4 6.4 6.2 5.2 5.4

Unemployment Rates

(% of total labor force, ILO estimates)

Brunei Darussalam 3.5 3.7 3.7 3.8 3.8

Cambodia - 0.4 0.3 0.2 0.3

Indonesia 7.9 7.1 6.6 6.1 6.3

Lao PDR 1.4 1.4 1.4 1.4 1.4

Malaysia 3.7 3.4 3.1 3.0 3.2

Myanmar 3.5 3.5 3.4 3.3 3.4

Philippines 7.5 7.3 7.0 7.0 7.1

Singapore 4.3 3.1 2.9 2.8 2.8

Thailand 1.5 1.0 0.7 0.7 0.7

Vietnam 2.6 2.6 2.0 1.8 2.0

Poverty Gap at National Poverty Lines

(in %)

Brunei Darussalam - - - - -

Cambodia 5.3 4.7 4.2 3.1 -

Indonesia 2.5 2.2 2.1 1.9 1.8

Lao PDR - - - 5.5 -

Malaysia 0.8 - - - -

Myanmar - - - - -

Philippines 5.4 - - 5.1 -

Singapore - - - - -

Thailand - - - - -

Vietnam - 5.9 - 4.5 -

Poverty rates at US$2 per day

(PPP, in %)

Brunei Darussalam - - - - -

Cambodia 11.2 10.6 10.3 - -

Indonesia - 14.3 13.0 - -

Lao PDR - - - 22.4 -

Malaysia 0.2 - - - -

Myanmar - - - - -

Philippines 13.6 - - 14.1 -

Singapore - - - - -

Thailand - 0.6 - - -

Vietnam - 4.2 - 2.9 -

Human Development Index (HDI)

Brunei Darussalam 0.844 0.844 0.846 0.852 0.852

Cambodia 0.566 0.571 0.575 0.579 0.584

Indonesia 0.665 0.671 0.678 0.681 0.684

Lao PDR 0.543 0.549 0.560 0.565 0.569

Malaysia 0.766 0.768 0.770 0.773 0.773

Myanmar 0.507 0.514 0.517 0.520 0.524

Philippines 0.647 0.651 0.652 0.656 0.660

Singapore 0.868 0.894 0.896 0.899 0.901

Thailand 0.715 0.716 0.720 0.722 0.722

Vietnam 0.622 0.629 0.632 0.635 0.638

Table 6. Key indicators of ASEAN countries, 2009-2013

Sources: World Bank World Development Indicators and United Nations Development Programme Human

Development Reports


Indonesia, Thailand, Vietnam, Singapore and Malaysia for instance already had lower unemployment rates to begin with but percentage point-wise reduced these by even more. In terms of poverty, the partial information at hand indicates that Indonesia, Cambodia and Vietnam have been able to reduce their poverty rates by more than the Philippines. A higher HDI indicates progress, and by this measure the Philippines is a lagging seventh in terms of improvement in Southeast Asia followed only by Malaysia, Brunei and Thailand (which all had much higher HDI values to start with). This relative performance of ASEAN countries that have generally been less enthusiastic about globalization than the Philippines should give the Aquino administration pause with its globalization and free market policies.

Worsening backwardness

The adverse turn in 2014 needs to be interpreted against long-term economic trends for a better understanding of why the country remains so underdeveloped. Over the last 60 years, measured economic growth has more or less moved around a trend rate of 5%, thus the recent growth slowdown in that direction is in a sense more normal than sustained or rising above-trend growth.

The recent episode of relatively rapid consecutive above-trend growth lasted just three years so far, over the period 2012-2014, which is too short from which to conclude that the economy has settled on a new trend rate. On the contrary, looking at a wider range of macroeconomic indicators beyond aggregate growth does not indicate that any positive structural transformation is happening.

This leads to the point that beyond the specific circumstances for the growth slowdown mentioned earlier is the more powerful underlying factor of a lethargic economy lacking a solid base in agricultural and industrial production. This is most of all what hampers urban and rural job generation, stifles incomes and livelihood opportunities, fetters local science and technology, and hinders economy-wide dynamism.

Neoliberal free market policies of globalization and greater integration in the global economy have adversely shaped the Philippine economy. Trade and investment liberalization, privatization and deregulation have been implemented for some three decades now and are even being deepened. But rather than bring development, these policies repressed agriculture, hindered national industrialization, and bloated a mixed but largely ineffective services sector. Public utilities and services have also become increasingly unaffordable. These trends are reflected in the patterns of business activities in the country of foreign corporations and oligarchic Filipino elites.

The decline in 2014 is consistent with the economy’s long-standing problems. The slowing economy is surprising only if it had been thought that the country is already and decisively on a new and higher growth path. Yet looking beyond the growth rates on the contrary shows little change in the production fundamentals of the economy that would cause such growth to be sustained. This makes the slowdown expected and only a matter of time.

Producers, consumers, businesses, firms and farmers respond to the opportunities and incentives defined by the government through its macroeconomic policies. Globalization policies have been the norm in the three decades since the 1980s. The economy has responded by putting the Philippines on a trajectory of deteriorating industry and agriculture astride an abnormally growing service sector. (See Chart 7) Liberalization, privatization and deregulation fostered the growth of consumerism and wholesale/retail trade, telecommunications and transport, power and water services, banking and finance, and real estate – the economy’s fastest growing sectors – at the same time eroded the economy’s fundamentals in agriculture and manufacturing.


-

10

20

30

40

50

60

1946 1950 1960 1970 1980 1990 2000 2010

-13

Chart 7. Gross Domestic Product By Industry Share, 1946-2014*

(at constant 2000 prices; in %)

* - 2014 data based on 1st-3rd quarters only

Source: Philippine Statistics Authority-National Statistical Coordination Board National Accounts of the Philppines

22.8 Manufacturing

33.0 Industry

57.4 Services

9.6 Agriculture,

Fishery and

Forestry

Year

2014

Q1-Q3

These trends are reflected in recent economic performance. The share in GDP of the trade sector rose from 15.8% in 2000 to 16.2% in the first three quarters of 2014, of transport, communication and storage from 6.1% to 7.6%, of financial intermediation from 5.2% to 7.4%, and of real estate, renting and business activities (which includes BPOs) from 9.3% to 11.4% – while that of agriculture decreased from 14.0% to 9.6% and the share of manufacturing fell from 24.5% to 22.8 percent. Leaps in wealth of the country’s super-rich, rising incomes and conspicuous mall consumption by a higher-income slice of the middle class, and a burst of infrastructure and building projects actually obscured the steady erosion of the national economy.

These are also reflected in trends in corporate revenues, according to data from Business World’s Top 1,000 corporations. The share in gross revenues of the Top 1,000 corporations of the trade sector rose from 13.1% in 2001 to 18.8% in 2013, of transport, communication and storage from 7.3% to 8.1%, and of finance, real estate and business activities (which includes BPOs) from 14.0% to 19.2 percent. Manufacturing’s share fell from 49.8% to 36.9% while that of corporate agriculture (not reflective of the overall agricultural sector) rose from 1.0% to 1.7 percent.

The growing services sector relative to the other productive sectors is more than anything an indication of the economy’s worsening backwardness. This is despite how BPOs, high-end retail, visible real estate, telecommunications, and finance have conjured an illusion of capitalist modernization. These are however only small parts of the economy and in any case services by their nature do not create as much employment and incomes as industry and agriculture. (See Table 2) They are also much less integrated or directly encouraging of the economy in terms of using domestic resources, purchasing local goods, and developing Filipino science and technology. The BPO and telecommunications sectors for instance are wholly dependent on imported equipment and technologies.

The recent growth episode is due to the confluence of lower interest rates, overseas remittances from labor export, and foreign investment in BPOs rather than any resurgence in farm or industrial output. This is why their momentary impact has not been enough to offset the inertia of underdevelopment reflected in moderate trend growth and in backward production, high unemployment and deep poverty.


In contrast the advanced capitalist, newly industrialized and socialist countries all took a trajectory of industrial growth in their economic development – seen in an increasing share of industry, especially manufacturing, in total output and employment. Among others, there was a programmed weaning from wholly imported products and technologies. Agricultural growth often also both spurred and developed alongside industry. No country has been able to sustain growth or develop without such production and only on the basis of services.

The country’s service-led economy increased the wealth of a few but is a development trap. The deterioration of the country’s economic fundamentals is obscured by the conspicuous expansion and accumulation of assets and wealth by the country’s biggest few oligarchs and their foreign partners. A handful of conglomerates have accumulated massive profits from the economy’s fastest growing sectors. These are however essentially services and moreover overly dependent on foreign capital, technology and products.

More to the point they are commercial operations, utilities and services that do not build domestic productive capacity that maximizes local human, natural and financial resources – hence the unending dependence on and payments for foreign capital, technology and products. From a strategic perspective this is the principal reason for the country’s slow trend growth and chronically high unemployment and poverty. The Philippines’ natural resources as well as large labor force and potential domestic market are not being used to build a national economy with a strong agricultural and manufacturing base.

The profile of the country’s largest corporations and its oligarchs’ sources of wealth reflect the debilitating impact of three decades of globalization. A few dozen large conglomerates and families dominate the economy. Although strictly not comparable, some indication of this is how the US$74.2 billion aggregate wealth of just the country’s 50 richest is equivalent to over a quarter (27%) of the country’s US$272.1 billion GDP in 2013 covering a population of 100 million Filipinos. There is also a concentration even among the 50 richest in the conglomerates built around and between the Sy, Tan, Gokongwei, Consunji, Ty, Aboitiz, Ayala, Zobel, Lopez and a few other families.

More significant from a structural perspective is the marked dominance and concentration of business interests in services, utilities and other non-production activities rather than in agriculture or manufacturing. The country’s biggest capitalist enterprises and biggest fortunes are largely in retailing and trade, real estate and construction, hotels and restaurants, transport and storage, telecommunications, water and power, and extractive mining. The recent real estate construction boom has made residential, office and infrastructure construction, malls and banking particularly profitable.

Some manufacturing industries have developed in food, beverage and tobacco although these are all light consumer industries and still heavy users of foreign intermediate and producer goods. There are still no Filipino medium- and heavy-industries. Although there are scattered firms in electronics, automobiles, petrochemicals, cement, pharmaceutical and others, these are generally low value-added and foreign capital-dependent operations. The repressed domestic market in any case prevents local economies of scale. The agricultural sector meanwhile remains generally backward – as indicated by its volatility and undue vulnerability to weather conditions – with low productivity and widespread rural poverty.

There is not just deindustrialization but also denationalization of manufacturing. National income accounts show manufacturing at some 22.8% of GDP in the first three quarters of 2014, which continues a decline since the 1980s that has reduced the sector to as small as its share of the economy in the 1950s.


But domestic manufacturing sector is even overstated by national accounts data which does not distinguish between Filipino manufacturers and foreign firms merely located in the country. As it is some 71% of supposed Philippine manufacturing is actually by foreign transnational corporations (TNCs) – approximated by using the share of TNCs in manufacturing revenues among the country’s Top 1,000 firms over the decade 2004-2012. This is important because foreign firms will have a tendency to import most of their inputs, protect their technologies, and avoid developing local manufacturing which would be a potential competitor. Electronics exports for instance which are produced mainly by TNCs are estimated to have an import content of at least 80-90% of their value.

The economy’s character as a source of cheap labor, cheap raw materials and captive market for foreign goods and services has worsened. Three decades of neoliberalism and capitalist free market globalization has intensified the economy’s character as providing resources and profitable opportunities for foreign capital. This is a long-standing structural problem especially in the absence of national industrialization.

The Philippines provides cheap labor mainly through labor export, export enclave manufacturing and BPO service exports. Depending on the data sources used, this includes anywhere from 6.7 million to over 13 million Filipino workers who earn salaries for their families but nonetheless directly contribute more to foreign economies and corporations than to the Philippines.The Commission on Overseas Filipinos (COF) latest estimate of the stock of overseas Filipinos is 10.5 million as of December 2012 consisting of 4.9 million permanent, 4.2 million temporary and 1.3 million irregular workers. This is a huge part of the Philippine labor force whose work contributes far more to their host economies than they get paid in low migrant salaries. Poor job prospects in the country continue to force Filipinos abroad where the 1.10 million deployed overseas Filipino workers in the first seven months of 2014 was equivalent to a record 5,201 leaving daily; this rate is slightly more than the 5,031 leaving daily in 2013 (with 1.84 million deployed for the year).

The Philippine Economic Zone Authority (PEZA) in turn reports 1.2 million employees in 306 economic zones nationwide as of end-November 2014 – working in electronics and semiconductors, fabricated metals, transport equipment and parts, electrical machinery, precision instruments, rubber and plastic, chemical products, and information technology services. They are overwhelmingly employed by foreign capital. PEZA reports that 77.8% of locator investments in economic zones are foreign, with 64.6% accounted for by Japan (30.7%), the US (16.5%), Netherlands (10.0%), and UK (7.5%). There is virtually no domestic market for the intermediate goods these zones produce especially in the absence of Filipino industry.

The Information Technology (IT) and Business Process Association of the Philippines (IBPAP) meanwhile estimated direct employment of 1.0 million in BPO sector entering the fourth quarter of 2014; it is not clear how much of this reported figure is also reflected in the PEZA estimate. They are likewise overwhelmingly employed by foreign capital. The BSP’s most recent data for IT-BPO services reported that the US$7.0 billion in foreign direct investment accounted for 95% of total equity in the industry. The US is the single biggest investing country accounting for 37.3% of foreign equity. The US, UK, Netherlands, Switzerland, Germany and Japan together account for 88.6% of foreign IT-BPO investment with the balance from India, Australia, Singapore, Malaysia, Hong Kong and South Korea.

The country is also a significant provider of mineral and agricultural raw materials. The mining sector serves foreign industry more than the Philippines. The Mines and Geosciences Bureau (MGB) reported US$3.6 billion (Php153.8 billion) in exports of minerals, non-metallic minerals and mineral products versus Php157.1 billion gross production value in mining – referring to the total value or gross output of minerals extracted – in 2013. This implies that the value of mineral exports was equivalent to some 98% of mineral production, which is a rough indication of how much of the country’s raw mining


resources are exported for mainly foreign gain. The figures are not strictly comparable but can be interpreted in this way because of the verified lack of domestic processing and manufacturing facilities (with just three copper and nickel plants in 2013).

The mining industry is quantitatively a small part of the national economy at just some 0.7-0.8% of GDP and accounting for just 0.6-0.7% of total employment since 2013. The loss of finite mineral resources with minimal gain for the national economy is qualitatively significant however in meaning a loss of Filipino resources for future national industrialization. There is an adverse trend under the Aquino administration: MGB data reports annual mining investment increasing from US$1.05 billion in 2010 to US$1.31 billion in 2013; the number of operating metallic mines correspondingly increased from 28 to 41 over the same period (rising further to 46 by the third quarter of 2014). The number of approved and registered mining applications grew from 679 in 2010, to 698 in 2013, and to 999 by the third quarter of 2014. The government is unfortunately willing to forego the future use of national mineral resources merely for some current taxes, fees and royalties.

Growing foreign investment is not contributing to national development. The economy’s neocolonial character also establishes the context for assessing foreign investment. Foreign capital can contribute to development but only if there is corresponding state regulation and control. The government needs to ensure local content and linkages, technology transfer, domestic reinvestment and other such gains for the domestic economy; equity and ownership restrictions give the leverage to achieve these.

Net foreign direct investment (FDI) notably increased last year – growing 64.1% to US$5.3 billion in the first 10 months of 2014 from US$3.2 billion in the same period the year before. (See Table 7) Equity capital investments with identifiable sectors went mainly to financial and insurance activities (US$830.8 million), manufacturing (US$244.9 million), and real estate (US$140.3 million) – which collectively accounted for 90% of equity investments.

Indicator 2010 2011 2012 20132013

Jan-Oct

2014

Jan-Oct p

Total Net Foreign Direct Investments 1,070.4 2,007.2 3,215.4 3,663.9 3,242.0 5,320.1

Total Net Portfolio Investments 4,610.4 4,077.6 3,911.3 4,224.5 3,597.9 (1,077.2)

p - preliminary

Table 7. Total Net Foreign Direct Investments and Net Portfolio Investments,

2010-2013 and 2013-2014 January-October (in million US$)

Source: Bangko Sentral ng Pilipinas (BSP)

The government’s contrary position of a liberal foreign investment regime however prevents the country from getting any net benefits from these inflows. It also takes an excessively pro-Western (especially pro-US) approach which preempts more creative economic opportunities with non-traditional powers such as the BRICS countries or Latin American economies assertive of national independence.

Overall economic growth has been slowing despite FDI generally increasing since the start of 2014 and it remains to be seen how much of a boost the lag effect, or the delay between the time of an intervention or economic action and the subsequent effect, will be. It is still unclear


for instance which sectors of the economy, if any, will benefit from the equity and debt inflows. If the investment goes largely to very import-dependent operations like enclave manufacturing, for instance, then the multiplier effects on the domestic economy will be low.

The historical record of FDI in the Philippines and the absence of a more strategic attitude by the government to foreign capital in any case do not give confidence that this record inflow will be any more productive. Indeed the domestic sectors where foreign capital has flowed in for decades – especially manufacturing, utilities and mining – remain as underdeveloped and foreign-dependent as before.

Exclusionary economics

The country’s long-standing structural problems cause the country’s chronically poor socioeconomic outcomes. Genuinely inclusive growth will have to mean a pattern of production that systematically creates jobs, raises incomes, reduces inequality and keeps prices low.

The employment situation is not improving and the jobs crisis continues. The economy is still in the middle of its worst crisis of joblessness in history: unemployment rates have stayed at a record sustained high of between around 10-12% since 2000 or at an average of 11.0% over the last 15 years. These are estimated by IBON adjusting for the official change in methodology since 2005 that prevented comparability with previous years.

The Philippine Statistics Authority (PSA) officially reported 2.7 million unemployed, 6.9 million underemployed and an unemployment rate of 6.8% in 2014. (See Table 8) PSA data for Region VIII (Eastern Visayas) has been excluded since 2014 after super-Typhoon Yolanda for logistical reasons; among others this removes some 100,000 unemployed from the figures. Again adjusting officially released PSA data, IBON on the other hand estimates 4.3 million unemployed, the same 6.9 million underemployed and an unemployment rate of 10.2%, for a total 11.2 million unemployed and underemployed Filipinos in 2014.

Employment reportedly increased by 1.02 million in 2014, which was more than double the 456,000 increase the year before. The underemployment rate also improved to 18.4 percent. The 1.02 million increase in employment however is actually of poor quality. In terms of hours worked, part-time work (worked less than 40 hours) accounted for 918,000 or 90% of the increment – including 605,000 or 60% which was for less than 20 hours – and those classified as with a job but not at work for 108,000. (See Table 9) There was a slight albeit possibly statistically insignificant decrease in full-time work.

By class of worker, the employment increase included 407,000 self-employed workers and 292,000 who worked without pay – meaning that 699,000 or 68% of employment created was in informal sector or unpaid family work, with only an additional 329,000 in wage and salary work. These resulted in the number of self-employed workers increasing to 10.5 million and those who worked without pay to 4.0 million in 2014. The largest part of the increased employment was also not in production sectors with 48% in construction, trade, and accommodation and food services and 7% in administrative and support services.

It can be argued that any additional work is better than none in giving an income stream for the workers and their families. While this is true, the deeper point is to highlight that employment trends in 2014 still confirmed the inability of the economy to create enough stable and sufficiently remunerating jobs for the labor force. Moreover, 77% of the additional employment


was created in agriculture, manufacturing, construction, trade, hotel and restaurants, and domestic help which are all sectors whose average daily basic pay is less than the already low national average of Php365.89 as of April 2014. (See Table 10)

2012 2013 2014 p 2012 2013 2014 p

Population (in thousands)

Total 15 years old and over 60,044 61,177 62,189 60,044 61,177 62,189

Labor Force 38,558 39,088 40,050 40,042 40,599 41,587

Employed 35,830 36,286 37,310 35,830 36,286 37,310

Underemployed 7,072 6,912 6,870 7,072 6,912 6,870

Unemployed 2,729 2,802 2,740 4,198 4,293 4,262

Not in the Labor Force 21,486 22,089 22,139 20,002 20,578 20,602

Rates (in %)

Participation Rate 64.2 63.9 64.4 66.7 66.4 66.9

Employment Rate 92.9 92.8 93.2 89.5 89.4 89.7

Underemployment Rate 19.7 19.0 18.4 19.7 19.0 18.4

Unemployment Rate 7.1 7.2 6.8 10.5 10.6 10.2

Officially Reported IBON Estimates a

Table 8. Labor Force Population*, 2012-2014 (levels in thousands; rate in%)

p - preliminary

a - IBON computes estimates on the labor force according to the old LFS unemployment definition for the purposes of comparison.

This is done by computing substitute labor force participation rates (LFPR) where changes in official reported annual average LFPR

are applied to the LFPR in 2007 that was still computed using the old labor force (and correspondingly unemployment) definition.

Source: Philippines Statistics Authority-National Statistics Office Labor Force Survey

Indicator

* - labor force population used here excludes Region VIII (Eastern Visayas) for comparability.

(in thousand) (in %) (in thousand) (in %) (in thousand) (in %)

Total Employed 35,380 100.0 36,286 100.0 37,310 100.0

At work 35,388 98.8 35,898 98.9 36,814 98.7

Part-time workers (worked less than 40 hours) 13,101 36.6 12,442 34.3 13,360 35.8

Full-time workers (worked 40 hours and over) 22,288 62.2 23,457 64.6 23,454 62.9

With job, not at work 441 1.2 388 1.1 496 1.3

Mean hours worked 41.3 41.9 40.9

* - Number of employed person used here excludes Region VIII (Eastern Visayas) for comparability.

p - preliminary

Estimates based on the 2000 Census of Population Projections.

Details may not add up to total due to rounding off.

Source: Philippine Statistics Authority-National Statistics Office Labor Force Survey

2014 p

Table 9. Employed Persons by Number of Hours Worked*, 2012-2014

Indicators2012 2013


Industry Group 2012 2013 April 2014

All Industries 333.82 349.16 365.89

Agricultural 166.74 170.34 181.53

Agriculture, Hunting and Forestry 165.27 169.22 180.96

Fishing 191.68 189.48 192.48

Non-Agricultural 366.90 383.04 395.75

Industry 328.46 337.11 338.57

Mining and Quarrying 317.21 302.13 294.41

Manufacturing 330.03 343.97 345.39

Electricity, Gas and Water Supply a 553.79 518.75 502.58

Construction 310.65 319.07 323.61

Services 383.48 403.00 422.82

Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles and Personal

and Household Goods b 282.05 293.01 299.68

Hotels and Restaurants c 280.86 295.20 320.66

Transport, Storage and Communications d 449.88 469.63 498.37

Financial Intermediation e 579.26 599.05 638.57

Real Estate, Renting and Business Activities f 522.50 556.68 563.42

Public Administration and Defense, Compulsory Social Security 533.66 559.79 588.58

Education 677.62 714.67 750.33

Health and Social Work g 484.73 523.55 520.56

Other Community, Social and Personal Activities h 275.91 288.47 291.41

Private Households with Employed Persons i 114.41 122.55 123.25

Extra-Territorial Organizations and Bodies j 1,185.61 735.72 334.78

Notes:

e - Financial Intermediation = "Financial and Insurance Activities"

g - Health and Social Work = "Human Health and Social Work Activities"

Source: Philippine Statistics Authority-National Statistics Office Labor Force Survey as cited in Philippine Statistics Authority-Bureau of Labor and

Employment Statistics December 2013 Current Labor Statistics

d - Transport, Storage and Communications = "Transportation and Storage" and "Information and Communication"

f - Real Estate, Renting and Business Activities = "Real Estate Activities", "Professional, Scientific and Technical Activities" and "Administrative and Support

Service Activities"

h - Other Community, Social and Personal Activities = "Arts, Entertainment and Recreation" and "Other Service Activites"i - Private Households with Employed Persons = "Activities of Households as Employers; Undifferentiated Goods and Services-producing Activities of

Households for Own Use"j - Extra-Territorial Organizations and Bodies = "Activities of Extraterritorial Organizations and Bodies"

3. Annual data are averages of the four survey rounds of the Labor Force Survey.

Table 10. Average Daily Basic Pay of Wage and Salary Workers by Major Industry Group, 2012-April 2014 (in Php)

1. Excludes those paid on commission basis, honorarium and boundary as in the case of jeepney/bus/tricycle drivers.

2. Industry grouping is in accordance with the 1994 Philippine Standard Industrial Classification (PSIC) for 2001-2011 and 2009 PSIC for 2012 and 2013.

However, average daily basic pay for certain industry groups for 2012 and 2013 were either computed or compared for the purpose of annual comparison:

a - Electricity, Gas and Water Supply = "Electricity, Gas, Steam and Air Conditioning Supply" and "Water Supply; Sewerage, Waste Management and

Remediation Activities"

b - Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles and Personal and Household Goods = "Wholesale and Retail Trade; Repair of Motor

Vehicles and Motorcycles"c - Hotels and Restaurants = "Accommodation and Food Service Activities"


Poverty remains deep and spread nationwide. The government’s latest Family Income and Expenditure Survey (FIES) of 2012 officially reported a family poverty incidence of just 19.7% (with 23.7 million Filipinos), including just 2.6% incidence in NCR. (See Table 11) These figures use per capita poverty thresholds of Php18,935 (around Php52 per day) on average in the Philippines and Php20,344 (around Php56 per day) in NCR. These are however self-evidently very low. IBON, using the same official data sets, estimates that some 66 million Filipinos or 68% of the population live off some Php125 or much less per day. This is more consistent with the results of IBON’s October 2014 survey where 71% of respondents rated themselves as poor.

Regions

Annual Per Capita

Poverty Threshold

(in Php)

Poverty

Incidence

(in %)

Magnitude

of poor

Philippines 18,935 19.7 4,214,921

NCR 20,344 2.6 76,530

CAR 19,483 17.5 65,516

Region I 18,373 14.0 154,712

Region II 19,125 17.0 130,965

Region III 20,071 10.1 240,079

Region IV-A 19,137 8.3 256,839

Region IV-B 17,292 23.6 150,486

Region V 18,257 32.3 375,974

Region VI 18,029 22.8 365,040

Region VII 18,767 25.7 405,694

Region VIII 18,076 37.4 337,221

Region IX 18,054 33.7 259,749

Region X 19,335 32.8 320,113

Region XI 19,967 25.0 268,957

Region XII 18,737 37.1 366,169

Caraga 19,629 31.9 169,522

ARMM 20,517 48.7 271,355

Source: Philippine Statistics Authority-National Statistical Coordination Board

Table 11. Annual Per Capita Poverty Threshold, Poverty

Incidence and Magnitude among Families by Region,

2012

Despite the low poverty thresholds, the official results can still be used to give an idea of the relative extent and spread of poverty. (See Table 11) Poverty incidence is lowest in NCR and in neighboring Central Luzon and Calabarzon and then markedly higher in the 14 other, mainly rural, regions. In particular, it is highest in Eastern Visayas and Southern Mindanao regions including erstwhile areas of Moro armed conflict. In terms of absolute numbers, the regions with the most number of poor households are Bicol, Western Visayas, Central Visayas, Northern Mindanao, SOCCSKSARGEN and ARMM – cumulatively accounting for half of poor households in the country.

The profits and wealth of a few continue to grow or remain high. Economic growth is most clearly seen in the high and generally rising wealth of the country’s biggest corporations and richest


Filipinos since 2010. (See Table 12) The net worth of the 40 richest Filipinos rose to US$72.2 billion in 2014 from the year before, the net income of the Top 1,000 firms was at Php1,013.4 billion in 2013, and the net income of the 306 Philippine Stock Exchange (PSE)-listed firms was already at Php311.6 billion by mid-2014. This prosperity tracks trends in the neocolonial economy and are concentrated in commercial operations, utilities and low value-added manufacturing.

Indicator 2010 2011 2012 2013 2014

Net income of PSE-listed firms (billion Php) 438.1 439.6 512.6 275.5 311.6

Net income of Top 1,000 firms (billion Php) 804.1 868.1 1,080.9 1,013.4 nda

Net worth of 40 richest Filipinos (billion US$) 27.8 34.0 47.4 64.2 72.3

PSE - Philippine Stock Exchange

nda - no data availablea - data for January-June only

Sources: Philippine Stock Exchange website (www.pse.com.ph), Business World Top 1000 Corporations in the Philippines

and Forbes website (www.forbes.com)

Table 12. Net Income of PSE-Listed Firms and Top 1,000 Firms in the Philippines and Net

Worth of 40 Richest Filipinos, 2010-2014 (net income in billion Php; net worth in

billion US$)

a a

The implied concentration of economic power has implications for the country’s policy landscape. These large foreign and domestic business interests are in intense competition with each other for the profitable opportunities created by the neoliberal policy regime in commerce, utilities and other services. This is for instance evident in the maneuvering, counter-maneuvering, alliances and feuding for PPP contracts and in how business groups nurture linkages with political elites and work to ensure that their particular allies have and retain political power. Connections with particular administrations are essential to get favored deals and contract terms.

However they are at the same time a coherent and potent lobby group for the maintenance and expansion of this profitable policy regime. Globalization policies are fundamentally about using the policy powers of the state to expand the opportunities for profit and consolidate the economic power of foreign and domestic capital. The growing domination of capital in general and foreign capital in particular over the domestic economy upon three decades of neoliberalism has shifted the economy in their favor with adverse implications for policy-making and on the welfare of the people.

The prices of basic goods and services continue to rise. Inflation last year was accelerating until the third quarter and slowed upon falling global oil prices since September. (See Chart 8) This will exert a dampening effect on interest rates in 2015. But although inflation is slowing, the effect on prices has still been cumulative and the prices of basic commodities have consequently still risen significantly, especially of rice and some vegetables, which exerts pressure on the real incomes of the country’s poorest households. (See Table 13)

Cheaper global oil has been translating into lower prices of local petroleum products. Last year saw the most number of rollbacks in recent years with 33 rollbacks in the price of diesel, 26 rollbacks in the price of gasoline, and 11 rollbacks in the price of LPG; conversely, there were also the least hikes. (See Table 14) There is nonetheless some indication that oil product prices have not gone down by as much as they could have. The price of benchmark Dubai crude in Philippine pesos was Php2,699 per barrel in December 2014 (US$60.39 per barrel at an average exchange rate of Php44.69 per US$1)


which was close to its Php2,728 price per barrel in May 2009. The DOE however reported a common pump price for diesel of Php31.40 in mid-December, which was slightly higher than its Php30.46 price in May 2009; gasoline in turn at Php42 was priced higher than its price of Php36.25. While only an approximation, this discrepancy can be interpreted against long-standing criticisms of oil firms’ domestic overpricing.

Pro-elite and anti-poor policies

The country’s historical and continuing poor development performance is self-evident and has driven a resurgence of protests by peasant, worker and other people’s organizations as well as progressive civil society groups. The Aquino administration however appears to be more responsive to the demands of business elites for continued and increased globalization policies than to the interests of the larger public.

It is advancing the privatization agenda through PPPs, consolidating trade and investment liberalization through various internal measures, and seeking to complete the opening up of the economy through further trade deals and especially Charter change. The good governance hype has in effect even been used as a smokescreen to entrench and deepen neoliberal and market-driven policies – in agriculture, manufacturing, education and health, banking and finance, foreign trade and investment, and mass transport and public utilities. Unchanged from previous administration’s policy thrusts, these have hardened the country’s backwardness and made its prospects even worse.

Privatization including the administration’s PPP program drastically raises the cost of essential public services. The Philippine government has been implementing privatization, or the handing over of control and even ownership of public operations to private companies, since the 1980s. The process was jump-started by initially focusing on Marcos-era government-owned and -controlled enterprises created with direct government investment to benefit the late dictator’s cronies. Soon after, however, it expanded to also cover vital public infrastructure, utilities and services, such as roads, power, water, railways, telecommunications, oil, and even hospitals. Private capital has taken over these sectors with corresponding increases in fees, rates and charges for the public.

-

1.0

2.0

3.0

4.0

5.0

6.0

Jan

2012

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

2013

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

2014

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Chart 8. Monthly Inflation Rate, January 2012-December 2014 (in %)

Year

Source: Philippine Statistics Authority-National Statistics Office


Privatization and its attendant deregulation were implemented with assorted laws in telecommunications (1993 and 1995), power (1993, 1994 and 2001), shipping and airlines (1994 and 1995), oil (1996 and 1998), water (1995) and hospital corporatization (1999). The Build-Operate-Transfer (BOT) law of 1990 (as amended in 1994 and 2012) is particularly significant in creating the legal framework for government to privatize infrastructure provision. Foreign ownership of public utilities and BOT projects is supposedly limited to 40%, but this has been bypassed or set aside through various legal and stratagems and maneuvers.

Power privatization has meant that generation, transmission, distribution and supply are now almost entirely controlled by the private sector. Generation costs are the largest component in the electricity bill. Wholly or majority foreign-owned power plants now account for around half of installed capacity in the country. Foreign ownership in power generation is mainly from Japan (Marubeni, Sumitomo, Tokyo Electric Power, Kansai and others), Korea (KEPCO), and the US (AES, Berkshire Hathaway, Blackstone, and PMR) with some Australian, UK, Italian, Taiwanese, Singaporean and Thai investors. The biggest Filipino producers are San Miguel Corp., the Aboitiz group, and the Lopez group with growing interest by the diversifying Sy, Ty, Consunji and Ayala groups. The government firm National Power Corporation (NPC) only generates a negligible percentage of installed capacity.

Commodity Unit Dec 2013 Dec 2014

Canned sardines Php/155 g can 12.15 - 14.50 12.25 - 13.75

Instant noodles Php/50-55 g pouch 6.00 - 7.10 6.30 - 7.10

Loaf bread Php/450 g 37.00 36.50

Pan de sal Php/250 g 22.50 22.25

Regular milled rice Php/kg 36.00 40.00

Well milled rice Php/kg 38.00 43.00

Refined sugar Php/kg 45.00 50.00

Brown sugar Php/kg 38.00 42.00

Cooking oil Php/lapad 25.00 26.00

Egg (medium) Php/pc 4.50 5.50

Pork ham/kasim Php/kg 180.00 190.00

Pork liempo Php/kg 190.00 200.00

Chicken Php/kg 130.00 140.00

Beef rump Php/kg 260.00 260.00

Beef brisket Php/kg 200.00 200.00

Bangus Php/kg 120.00 120.00

Tilapia Php/kg 90.00 100.00

Ampalaya Php/kg 50.00 70.00

Cabbage Php/kg 40.00 40.00

Carrots Php/kg 80.00 60.00

Tomato Php/kg 50.00 40.00

Eggplant Php/kg 50.00 50.00

Table 13. Prices of Selected Basic Food Commodities,

December 2013-2014 (in Php)

Sources: Department of Trade and Industry, and Philippine Statistics Authority-Bureau of

Agricultural Statistics


After power privatization the country now has the most expensive electricity rates in Asia, as reported by the Japan External Trade Organization (JETRO) in their latest survey of investment costs in Asia. The marginal decrease in power rates this January is only temporary though with the distributor Manila Electric company (Meralco) likely increasing its rates with collection of the disputed feed-in tariff (FIT) in February and upon the summer season starting March.

Telecommunications privatization and deregulation has resulted in the sector’s monopolization by the Philippine Long Distance Telephone Co. (PLDT), with for instance 63.4% of the mobile market, and by Globe Telecom (36.6%). PLDT remains the dominant fixed-line provider as well. There has been considerable activity, investment and profits since the 1990s. As an indicator of service however the Philippines still has the slowest Internet speeds at among the most expensive costs in Asia.

The large hikes in the Light Rail Transit (LRT) 1 and 2 and Metro Rail Transit (MRT) 3 fares and the looming increases in Manila water rates (by concessionaires Maynilad and Manila Water) are particularly emblematic. First, these hikes come from the application of the ‘user pays’ principle in service pricing by private firms and the government. This is based on the idea that the cost of a service must be recovered entirely, or at least as much as possible, from those who directly use and benefit a service (usually a monopolistically-provided or otherwise essential service). Second, the rate hikes are contained explicitly or in principle in the contracts that the government enters into in its PPP projects. Indeed it is seen as essential to ensure the commercial viability and attractiveness of projects for profit-seeking firms.

Petroleum Product 2010 2011 2012 2013 2014 *

Number of Oil Price

Movements

Gasoline 40

(22 hikes,

18 rollbacks)

46

(29 hikes,

17 rollbacks)

42

(20 hikes,

22 rollbacks)

40

(26 hikes,

14 rollbacks)

44

(18 hikes,

26 rollbacks)

Diesel 41

(23 hikes,

18 rollbacks)

42

(25 hikes,

17 rollbacks)

40

(19 hikes,

21 rollbacks)

36

(25 hikes,

11 rollbacks)

49

(16 hikes,

33 rollbacks)

Liquefied

Petroleum

Gas (LPG)

4

(1 hike,

3 rollbacks)

12

(5 hikes,

7 rollbacks)

12

(8 hikes,

4 rollbacks)

11

(5 hikes,

6 rollbacks)

12

(1 hike,

11 rollbacks)

Price Range as of

End-Period (Php)

Gasoline 46.55 - 47.89 47.79 - 55.70 39.50 - 42.45 49.15 - 55.30 37.85 - 43.95

Diesel 37.20 - 39.35 42.54 - 46.13 47.60 - 53.95 41.35 - 45.75 29.20 - 32.55

Liquefied

Petroleum

Gas (LPG)

662.00 - 753.00 654.00 - 715.00 670.00 - 814.00 842.00 - 965.00 570.00 - 711.00

Table 14. Oil Price Movement and Price Range By Petroleum Product, 2010-2014

Source: Department of Energy Oil Monitor

* - price range as of the last release of the DOE (December 16).


The LRT hike is being implemented as part of the government’s contractual and perceived commitment to the private firms that will operate and maintain the LRT system – mainly the Pangilinan group Metro Pacific Investments Corporation (MPIC) and Ayala group AC Infrastructure in the case of LRT-1, and as yet undetermined private firms for LRT-2. The MRT-3 hike will go to paying onerous contractual obligations with private Metro Rail Transit Corporation (MRTC) as well as make up for DOTC-mismanagement of the railway.

The revised rail fares will mean increases of as much as 50% (LRT-1), 66% (LRT-2) and 87% (MRT-3) in the maximum fares charged on each rail line. (See Table 15) Using these increases in maximum fares as a benchmark illustrates the greatly increased burden on commuters – the annual rail expense of the average commuter on LRT-1 will increase from Php10,797 to Php16,195 (i.e. increasing by Php5,398), on LRT-2 from Php9,753 to Php16,190 (i.e. increasing by Php6,437), and on MRT-3 from Php9,413 to Php17,603 (i.e. increasing by Php8,190). IBON estimates that these additional costs will be borne by families with monthly incomes of just Php11,583-Php29,250.

The Manila water rate hikes meanwhile are among contractual obligations with the duopoly water concessionaires. The increase due to the foreign currency differential adjustment (FCDA) – already previously criticized as double-charging of foreign exchange (forex)-related costs by the firms – is actually only the tip of the iceberg. (See Table 15) Rate hikes upon decisions by a corporate-biased international commercial tribunal will be much higher. West Zone-provider Maynilad, apparently prematurely, announced an arbitration decision of a Php3.06 increase in its 2013 basic water charge of Php31.28 per cubic meter. The decision in the case of Manila Water in the East Zone is expected around February. As it is, since water privatization in 1997 water tariffs have increased nearly seven-fold (559%) in the case of Maynilad and nearly nine-fold (859%) in the case of Manila Water. These rate increases far outpaced inflation over the same period.

The supply and pricing of these vital public services is now largely determined by what ensures profits for the private capitalist providers rather than the greater public interest and welfare. This is particularly burdensome given the widespread poverty and low incomes in the country. Their impact is also cumulative and come on top of likewise rising prices of food, schooling, housing and health care. In 2015, consumers are facing drastically rising privatization-driven prices in 2015: electricity rates, LRT and MRT fares, water tariffs, and even toll fees.

Government privatization policies and PPPs prioritize private profits at the expense of public service. The Aquino administration is seeking to become more aggressive with PPPs. It has already identified 61 major PPP projects including airports, railways, mass transport, roads and bridges, ports, water utilities, hospitals, schools and others with combined indicative project costs for 30 projects so far of Php1,212.3 billion. (See Table 16) Eight contracts have been awarded so far with another 14 already in the bidding stage. Foreign and domestic capital are the main beneficiaries.


Previous

Rate

New/

Proposed Rate% Increase

LRT and MRT fare

LRT 1, From Baclaran to:

EDSA 12.00 12.00 -

Libertad 12.00 13.00 8.33

Gil Puyat 12.00 13.00 8.33

Vito Cruz 12.00 14.00 16.67

Quirino 13.00 15.00 15.38

Pedro Gil 13.00 16.00 23.08

UN Avenue 13.00 17.00 30.77

Central Terminal 13.00 18.00 38.46

Carriedo 14.00 19.00 35.71

Doroteo Jose 14.00 19.00 35.71

Bambang 14.00 20.00 42.86

Tayuman 14.00 21.00 50.00

Blumentritt 15.00 21.00 40.00

Abad Santos 15.00 22.00 46.67

R. Papa 15.00 23.00 53.33

8th Avenue 15.00 24.00 60.00

Monumento 15.00 25.00 66.67

Balintawak 19.00 27.00 42.11

Roosevelt 20.00 29.00 45.00

LRT 2, From Recto to:

Legarda 12.00 12.00 -

Pureza 12.00 14.00 16.67

V. Mapa 12.00 15.00 25.00

J. Ruiz 13.00 16.00 23.08

Gilmore 13.00 17.00 30.77

Betty Go-Belmonte 13.00 18.00 38.46

Araneta-Cubao 14.00 19.00 35.71

Anonas 14.00 21.00 50.00

Katipunan 14.00 22.00 57.14

Santolan 15.00 24.00 60.00

MRT 3, From North Avenue to:

Quezon Avenue 10.00 13.00 30.00

GMA-Kamuning 10.00 13.00 30.00

Cubao 11.00 16.00 45.45

Santolan 11.00 16.00 45.45

Ortigas 12.00 20.00 66.67

Shaw Boulevard 12.00 20.00 66.67

Boni Avenue 12.00 20.00 66.67

Guadalupe 14.00 24.00 71.43

Buendia 14.00 24.00 71.43

Ayala Avenue 14.00 24.00 71.43

Magallanes 15.00 28.00 86.67

Taft 15.00 28.00 86.67

Water rates (in Php/cu. m.)

Manila Water, All-in tariff

(because of Php0.36 in FCDA)37.30 38.51 3.24

Maynilad, All-in tariff

(because of Php0.38 in FCDA)47.00 47.51 1.09

Maynilad, Basic tariff

(Php3.06 proposed as a result of

rate rebasing arbitration with the

International Chamber of

Commerce)

33.97 37.03 9.01

Table 15. Summary of LRT/MRT and Maynilad Rate Hikes

Sources: Light Rail Transit Authority, Department of Transportation and Communications, and

Metropolitan Waterworks and Sewerage System


Project NameEstimated Cost

(in billion Php)

Implementing

AgencyPPP Structure Status

Winning Bidder / Bidders /

Pre-qualified Bidders

Daang Hari-SLEX Link Road Project 2.0 DPWH BTO Awarded AC Infrastructure (Ayala Corp.)

PPP for School Infrastructure Project (PSIP)

Phase I

16.3 DepEd BLT Awarded 1. Citicore Holdings Investment, Inc.-Megawide

Construction Corp.

2. Consortium of BF Corp.-Riverbanks Devt Corp.

Ninoy Aquino International Airport (NAIA)

Expressway (Phase II) Project

15.5 DPWH BTO Awarded Optimal Infrastructure Development Corporation

(SMC)

PPP for School Infrastructure Project (PSIP)

Phase II

3.9 DepEd BT Awarded 1. Megawide

2. Consortium of BSP & Co. Inc. and Vicente Lao

Construction

Modernization of the Philippine Orthopedic Center 5.7 DOH BOT Awarded Megawide-World Citi Consortium

Automatic Fare Collection System 1.7 DOTC Awarded AF Consortium (Ayala Corp.-MPIC)

Mactan-Cebu International Airport Passenger

Terminal Building

17.5 DOTC BROT Awarded GMR Infrastructure (India) and Megawide

Consortium

LRT Line 1 Cavite Extension and Operation and

Maintenance

64.9 DOTC BTO Awarded Light Rail Manila Consortium (Ayala Corp.- MPIC)

Metro Rail Transit (MRT) 7 69.3 DOTC BGTOM Awarded Universal LRT Corp. Ltd. (SMC, DMCI-Marubeni)

Skyway Stage 3 Project (NLEX-SLEX Connector) 26.7 TRB JV via STOA Awarded Citra Central Expressway Corp.

(SMC, PNCC, Citra Lamtoro Gung Persada)

Integrated Transport System Project - Southwest

Terminal

2.5 DOTC BTO Ongoing bid evaluation Bidders: 1. D.M. Wenceslao and Associates Inc.,

2. SMC, 3. Metro Pacific Tollways Corp., 4. Ayala

Land Inc., 5. Ayala Corporation, 6. Vicente T. Lao

Corporation, 7. Robinsons Land, 8. Egis Projects

Philippines, 9. Filinvest, 10. Megawide, 11. State

Properties, 12. Expedition Construction Corp,

13. Altus San Nicolas Corp., 14. Megaworld Corp.,

15. Tutuban Properties Inc.

Bulacan Bulk Water Supply Project 24.4 MWSS BOT For bid submission Bidders: 1. Manila Water, 2. Marubeni (Japan),

3. Filinvest, 4. First Balfour, 5. Abengoa (Spain),

6. Megawide, 7. SMC, 8. Maynilad Water Services,

Inc., 9. New San Jose Builders, Inc., 10. Sojitz Corp.

(Japan), 11. Korea Water Resources Corp. (Korea),

12. Prime Water Infrastructure Corp, 13. Datem

Water, Inc., 14. Acciona Agua (Spain), 15. Aboitiz

Equity Ventures

Integrated Transport System Project - South

Terminal

4.0 DOTC BTO Pre-qualifying (PQ)

evaluation completed

Bidders: 1. Megawide Construction Corp., 2. SMC.,

3. Ayala Land Inc., 4. Datem Inc., 5. Robinsons

Land,

6. Filinvest

Laguna Lakeshore Expressway Dike Project 122.8 DPWH BOT For PQ docs

submission

Bidders: 1. Muhibbah Engineering (Phil.)

Corporation,

2. GT Capital Holdings, Inc., 3. Ayala Land, 4. Egis

Projects S.A. Tam-Yap and Law Offices,

5. Megaworld Corporation, 6. Metro Pacific Tollways

Corp., 7. Minerales Industrias Corp., 8. Leighton

Contractors (Philippines) Inc., 9. JV Power and

Wealth Corporation, 10. LT Group, Inc., 11. Laguna

Lakeshore Consortium, 12. Filinvest Land, Inc.,

13. Macquarie Capital Securities (Phil.) Inc.,

14. SMC, 15. Megawide Construction Corporation,

16. Aboitiz Equity Ventures, Inc., 17. JG Summit

Holdings Inc., 18. PT Star Line, 19. State Properties

Corporation, 20. MTD-Hanshin_VistaLand

Consortium, 21. IL & FS Tranportation Networks

Ltd.,

Operation and Maintenance of LRT Line 2 No Capex DOTC O and M For submission of PQ

docs.

Bidders: 1. Light Rail Manila Consortium (LRMC),

2. SMC, 3. GT Capital Holdings, Inc., 4. Marubeni

Philippines, Corp., 5. D.M. Consunji, Inc., 6. RATP

Development, 7. APT Global Inc., 8. Globalvia,

9. Aboitiz Equity Ventures, Inc.

New Centennial Water Source Project - Kaliwa Dam

Project

18.7 MWSS BT For PQ docs

submission

Bidders: 1. Prime Metroline Holdings Inc. 2. San

Lorenzo Ruiz Builders and Developers Group, 3.

Obrascon Huarte Lain S.A., 4. Abengoa Abeinsa

Business Development, 5. DM Consunji Inc., 6. San

Miguel Holdings Corp., 7. Filinvest Development

Corp., 8. Megawide Construction Corp.

New Bohol (Panglao) Airport Operations,

Maintenance & Development Project

2.3 DOTC OAT For PQ docs

submission

Laguindingan Airport Operations, Maintenance &

Development Project


submission

Puerto Princesa Airport Operations, Maintenance &

Development Project


submission

Davao Airport Operations, Maintenance &

Development Project


submission

Table 16. Status of Awarded and Bid-out Projects and Projects in Advanced Stage, as of January 9, 2015


Project NameEstimated Cost

(in billion Php)

Implementing

AgencyPPP Structure Status

Winning Bidder / Bidders /

Pre-qualified Bidders

Bacolod Airport Operations, Maintenance &

Development Project


submission

Iloilo Airport Operations, Maintenance &

Development Project


submission

Davao Sasa Port Modernization Project 19.0 DOTC BTO For issuance of ITPB

Regional Prison Facilities through PPP 50.2 DOJ BTM For issuance of ITPB

Cavite-Laguna (CALA) Expressway 35.4 DPWH BTO For NEDA Board

Approval

Bidders: 1. San Miguel Corporation, 2. Korea

Expressway Corporation, 3. Alloy MTD Philippines

Inc., 4. Macquarie Infrastructure Holdings

(Philippines) Pte. Limited, 5. Megawide Engineering

Excellence, 6. Leighton Contractors, Inc., 7. Makati

Development Corp., 8. AC Infrastructure Holdings

Corp., 9. EGIS Projects Developer of Infrastructure

& Services, 10. Metro Pacific Tollways Development

Corp., 11. Aboitizland, Inc., 12. Tokwing Construction

Corp./STX Enterprises (J.V.), 13. E.F.C. Enterprises

NLEX-SLEX Connector 25.6 DPWH JV For NEDA Board

approval b

MPTC-PNCC

Motor Vehicle Inspection System Project 19.3 DOTC BTO For ICC approval

Civil Registry System - IT Project (Phase II) 1.2 PSA

Makati-Pasay-Taguig Mass Transit System Loop 374.5 DOTC BOM For ICC approval

North-South Railway Project (South Line) 177.2 DOTC For ICC approval

San Fernando Airport TBD BCDA BTO Ongoing preparation of

feasibility study

LRT-1 Extension to Dasmariñas Project TBD PNOC Ongoing preparation of

feasibility study

Batangas-Manila (BatMan) 1 Natural Gas Pipeline

Project

TBD PNOC Ongoing preparation of

feasibility study

Manila Bay - Pasig River - Laguna Lake Ferry

System Project

TBD DOTC Ongoing preparation of

feasibility study

C-5 Transport Service Development Project TBD DOTC Ongoing preparation of

feasibility study

Clark International Airport Project TBD DOTC Ongoing preparation of

feasibility study

Integrated Transport System - North Terminal

Project

TBD DOTC Ongoing preparation of

feasibility study

NAIA Development Project TBD DOTC Ongoing preparation of

feasibility study

Trimedical Complex TBD DOH Ongoing preparation of

feasibility study

Sta. Mesa - Ortigas - Angono Rail Line TBD DOTC

Joint Sludge Treatment Plant TBD DPWH

Plaridel Bypass Toll Road TBD DPWH For procurement of

consultants to conduct

pre-investment studies

Road Transport IT Infrastructure Project (Phase II) TBD DOTC Ongoing preparation of

feasibility study

Legend:

BCDA - Bases Conversion Development Authority DOJ - Department of Justice O and M - Operate and Maintain

BGTOM - Build-Gradual Transfer-Operate-Maintain DOTC - Department of Transportation and Communications OAT - Operate-Add-Transfer

BLT - Build-Lease-Transfer DPWH - Department of Public Works and Highways PNCC - Philippine National Construction Corporation

BOM - Build-Operate-Maintain ICC - Investment Coordination Committee PNOC - Philippine National Oil Company

BOT - Build-Operate-Transfer ITB - Invitation to bid PQ - Pre-Qualifying

BROT - Build-Rehabilitate-Operate-Transfer ITPB - Invitation to prequalify and bid PSA - Philippine Statistics Authority

BT - Build-and-Transfer JV - Joint venture SLEX - South Luzon Expressway

BTM - Build-Transfer-Maintain LRT - Light Rail Transit SMC - San Miguel Corp.

BTO - Build-Transfer-Operate MPIC - Metro Pacific Investments Corp. STOA - Supplemental Toll Operation Agreement

Capex - Capital expenditure MPTC - Metro Pacific Tollways Corp. TBD - To Be Determined

DepEd - Department of Education MWSS - Metropolitan Waterworks and Sewerage System TRB - Toll Regulatory Board

DOH - Department of Health NLEX - North Luzon Expressway

a - SMC's Optimal Infrastructure Development Inc. was disqualified after MPCALA Holdings Inc. questioned the bid security requirement.

b - A complaint was filed before the DOJ questioning the legality of MPTC and PNCC's joint venture.

Source: Public-Private Partnership Center

Table 16. Status of Awarded and Bid-out Projects and Projects in Advanced Stage, as of January 9, 2015 (continuation)


In the first instance, PPP projects will directly benefit the foreign firms that design, construct, finance, operate and maintain these infrastructure projects. The necessary aerospace, railway, water and medical equipment, hardware and technologies used in these projects will also be wholly imported. Application of the ‘user pays’ principle after construction in turn ensures a steady revenue stream over the coming decades of the contract period, commonly 25 years or more.

The administration has also ensured that big foreign and domestic business interests are covered in the 2015 national government budget. There is at least Php59.1 billion set aside in 2015 for PPPs consisting of Php57.2 billion in the regular budget and Php1.9 billion in a supplemental budget. The main beneficiaries will be the country’s biggest oligarchs – the conglomerates of the Sy, Cojuangco, Ang, Ayala and Pangilinan groups – and their foreign equity partners and creditors.

Specifically, the budget allocation will cover: Php30 billion risk management program (the financial and regulatory risk guarantee promised by Pres. Aquino as early as his first state-of-the-nation-address in 2010); Php1.6 billion for amortization and lease payments to the private firm for school building PPP projects; Php10.9 billion for right of way acquisition in six expressway projects; Php2.7 billion for right of way acquisition for the Integrated Transport System; Php7.4 billion for LRT-1/LRT-2 extension and privatization; Php723 million for LRT-1/LRT-2 rehabilitation; Php4.7 billion for committed payments to MRTC; and Php1.2 billion for MRT-3 rehabilitation.

The government can raise financial resources for public investment with a progressive tax system. The most common justification for PPPs is that they overcome the government’s handicap of not having the financial resources or technical capacity for infrastructure and social services. However significant additional revenues can be raised with some basic reforms in the country’s regressive and pro-elite tax system.

Initially, we can begin with a conservative approximation of the tax burden that the economy can take. The country’s highest tax effort (i.e. tax revenues as a percentage of GDP) in the post-Marcos period was 17% in 1997. If this had also been reached in 2013, tax revenues would have been Php1,796 billion instead of actual collections of Php1,535 billion – implying fiscal space of effectively Php261 billion. It is then not unrealistic to expect the government to be able to earn at least another Php261 billion to bring the tax effort to what had already been achieved in 1997. The administration targets a tax effort of 15.1% for 2015.

The tax system needs to be reoriented to give much greater emphasis on collecting taxes from large corporations and high-income individuals/families. This is the most rational and sustainable way of ensuring that there are resources for social and economic spending biased for the needs of the poor majority of Filipinos.

Some key general possibilities for additional tax revenue generation can be considered for illustrative purposes (all of which assume determined collection and that all other things remain equal). Restoring the corporate income tax to 35% should increase revenues by at least Php25 billion. Increasing the tax burden on the income of the richest decile of families – such as through higher personal income taxes – so that an additional 10% of their cumulative income (Php1,532 billion in 2012) is collected should increase revenues by another Php153 billion. This also means steps towards reducing inequality in the country.

Trade liberalization has drastically reduced tariff revenues. Increasing import duties to achieve its peak of 4.8% of GDP in 1996 should increase revenues by Php250 billion. This corresponds to the 2.1 percentage point difference between peak import duties as a percentage of GDP of 4.8% in 1996 to actual import duties of 2.6% of GDP in 2013. Applying the peak rate to 2013 GDP implies


total collection of Php554 billion versus actual collections of some Php305 billion. Undetermined amounts can also be raised by increasing taxes on luxury goods and services, wealth and property, and even on hot money financial transactions.

Nor is the technical constraint absolute. The private sector is not inherently and always better at delivering services especially if ‘better’ is construed as both efficient and affordable. With the correct orientation and mechanisms for performance, transparency and accountability there is no reason for the public sector to not build its technical capacity on the widest range of essential utilities and services.

Pro-people economic policies

The administration’s damaging trade and investment liberalization policies should be replaced with pro-people structural reforms. The Aquino administration is building on the neoliberal pro-market policy errors of previous governments, which has kept the Philippines on its trajectory of underdevelopment. There is an urgent need to shift from the current anti-development strategy to one that is responsive to the immediate and long-term interests of Filipino workers, peasants, low-paid employees, and national entrepreneurs.

The administration’s medium-term Philippine Development Plan 2011-2016 (including its mid-term update) remains within the globalization policy paradigm. It is taking an assortment of measures to make pro-foreign capital trade and investment liberalization even easier: smoother customs processes, less bureaucratic investment procedures, and greater incentives. Many of these are implemented within the framework of Asia Pacific Economic Cooperation (APEC) mechanisms.

New trade deals are also being pursued especially the US-centric Transpacific Partnership (TPP) Agreement but also with Europe. Removing the Philippine Charter’s nationalist economic provisions remains an agenda to be pushed as political circumstances allow. The Aquino government has allowed the full entry of foreign banks. It has railroaded the K to 12 program most of all to provide foreign capital and economies the kind of workforce that they can profit from. It is also unrepentant with PPPs and privatization – aside from allotting billions of pesos in public funds it is even seeking to legally protect PPP projects from local government interventions and to prohibit temporary restraining orders and injunctions on these projects.

The contours of a pro-people development strategy are however well-established, drawing on the varied experiences of many countries including the advanced capitalist powers, newly industrialized countries and socialist states. There are a few key reform areas. Economic policy has to be focused on completing agrarian reform, developing agriculture and building Filipino industry. Domestic science and technology must be aggressively developed. These will require a genuinely sovereign trade and investment policy.

Gross inequities are the starting conditions of poverty and backwardness and not resolving these means continued inequity, poverty and backwardness. Income, wealth and assets have to be radically redistributed through free land distribution, substantial wage increases, and a progressive tax system. The fiscal base of a responsible and development-oriented state must be built. This will also enable the required public provision of essential utilities and vital social services.

Significant political changes are needed to effect major economic change. The current period of crisis and upsurge of people’s movements may yet herald the requisite democratic political advances in the country.


A Defensive Regime

Economic policies that oppress the poor and ordinary income earners, criminal neglect of disaster survivors, human rights violations, sell-out of national sovereignty in particular to US imperialism, and lack of genuine reforms to curb corruption including lack of accountability of administration

officials and allies involved in anomalies—these have fuelled the widespread and growing social discontent and public disenchantment with the Aquino regime.

These people’s issues have been steadily eroding the legitimacy of the Aquino regime even before the pork barrel controversy broke out. But the pork barrel scam, in particular the Disbursement Acceleration Program (DAP), served as the spark that gathered and further intensified public anger and rejection of the elite governance and trapo politics of Pres. Aquino and his ilk. This jeopardized the regime’s plan to stay in power beyond 2016, especially that its likely standard bearer Interior Secretary Mar Roxas apparently remains unpopular.

2014 thus saw the Aquino regime launch an aggressive campaign to demolish its perceived strongest opponents in the 2016 elections. Such apparent early electioneering could be the direct result of how the regime was shaken by the pork barrel and the DAP scandal.

For the Aquino regime, the DAP controversy was an adverse turning point. After harboring the illusion of stability and legitimacy in the first half of its term, the Aquino regime now finds itself in a defensive position. The imagined consolidation of power and through Pres. Benigno Aquino III’s supposed popularity is now being exposed as shallow, if not illusory altogether.

Thus, the defensive Aquino regime responded with a systematic effort to recover from the suddenly difficult political situation it is facing. Since the second half of 2014, it has zeroed in on its perceived strongest electoral foe Vice-President Jejomar Binay. It has launched a prolonged Senate probe (13 hearings since August last year and counting) on various corruption charges against Binay, with some complaints also lodged at the Ombudsman. Allies, supporters and the family of the VP are suddenly facing tax evasion cases, their companies investigated and their old corruption cases revived.

Prior to Binay, the Aquino administration also neutralized Senators Jinggoy Estrada and Ramon Bong Revilla, both of whom were once seen as strong competitors in 2016, along with Sen. Juan Ponce Enrile. They are now under detention facing plunder charges at the Sandiganbayan due to alleged kickbacks from the Janet Napoles pork barrel operations. Like Binay, the three were systematically discredited in nine televised Senate hearings that lasted seven months, greatly weakening their political viability in the process.

Meanwhile, the Aquino camp quickly dismissed the three cases of impeachment against the President at the administration-controlled House of Representatives (HoR). The complaints stemmed from Pres. Aquino’s alleged violation of the Constitution for implementing the DAP and for signing the Enhanced Defense Cooperation Agreement (EDCA) with the US. For the weakened Aquino regime, EDCA is an assurance of continued US support and patronage, which is crucial in perpetuating itself beyond 2016. Binay and his party United Nationalist Opposition (UNA), despite the obvious demolition job by the ruling party, did not support the impeachment led by the Makabayan bloc of progressive partylist groups. Binay’s camp said it was out of ‘delicadeza’, i.e. Binay would directly benefit if Aquino was convicted. However, it was simply political opportunism on the part of Binay who does not want to lose the support of Aquino’s relatives and some funders. Binay, in fact, does not openly and directly criticize the President as he would prefer to keep for as long as he can his Cabinet posts as housing czar and OFW adviser that bolster his political ambition.


Indeed, the only true and consistent opposition to the Aquino regime and its flawed policies and programs is the people’s movement that pushes for long-term reforms in the country’s economy and government that will truly serve the national interest and the rights and aspirations of the great majority of Filipinos. Thus, while the Aquino regime is trying to weaken the other factions of the ruling elite that threaten to replace it in 2016, it reserves its most vicious attacks to the Left and the progressive national democratic organizations of the people.

Nonetheless, as the factional conflict within the ruling elite intensifies towards 2016 and the contradiction between the ruling faction and the people sharpens, opportunities develop to raise and successfully carry on the various issues of the people, push for genuine reforms and make the Aquino government accountable.

Pro-elite governance and trapo politics

Pres. Aquino’s five years in power have been characterized by a brand of politics that is unmistakably pro-elite and anti-people. Despite all the publicity about good governance, Pres. Aquino is as trapo as his predecessors, if not even worse. Like all bureaucrat capitalists that represent big business and landlord interests, Pres. Aquino has effectively used the vast powers of the state to guarantee the profits of local oligarchs and foreign corporations.

This has been in full display in his PPP initiative, the centerpiece of the Aquino government’s economic program wherein big business groups that have close ties with Pres. Aquino are making a killing. Case in point is the privatization of the LRT 1, which the government gave to MVP-Ayala tandem. The concession agreement reeks of crony capitalism with Aquino providing private operators the regular and automatic fare adjustment schemes, regulatory risk guarantee (i.e. losses from unimplemented fare hikes will be paid for by people’s taxes), exemption from payment of real property taxes estimated at Php64 billion, and a start-up subsidy of Php5 billion. As part of the deal, Aquino also rewarded Ayala with the so-called common station (which will link LRT 1 with MRT 3) that was originally located in front of rival SM North EDSA but was suddenly moved to Trinoma. As expected, SM disputed the transfer so the DOTC now plans to have two common stations to accommodate both Henry Sy and the Ayalas.

But for many, it was the handling of the challenge to its legitimacy and political consolidation that fully displayed the elitist and trapo hallmark of the Aquino presidency and bared its good governance rhetoric. Faced with the unfavorable SC decisions on pork barrel and the DAP, Aquino implied impeachment against the High Court’s justices and later hinted that he was open to Charter change (Cha-cha) to clip the Judiciary’s powers and for his term extension. These were immediately shot down by strong public opinion, which only further confirmed Aquino’s increasing isolation from the people.

Like all regimes that relied on the rotten system of patronage politics and systemic corruption to sustain itself, Aquino is unwilling to give up precious pork barrel funds especially that 2016 is just around the corner. Thus, through Liberal Party (LP) members and allies in Congress, the Aquino presidency maneuvered to retain almost Php486 billion in discretionary and lump sum funds (based on Bayan Muna’s estimates) that are essentially presidential pork barrel in the 2015 national budget. To circumvent the SC decision, it redefined the meaning of ‘savings’ to allow it to easily realign spending to suit its agenda and interests. Given the key role that local government units (LGUs) play in presidential elections, it allocated significant amounts that are discretionary and lump sum to buy the political loyalty of local government officials.


The Aquino administration has transformed the Php2.6-trillion budget into a bottomless election “war chest” with mammoth increases in its planned lump sum spending for LGUs, many of which will be directly handled by Roxas as head of the Department of Interior and Local Government (DILG). A glaring example is the huge 80% increase in lump sum allocations for LGUs – from the current Php17.3 billion to Php31.1 billion next year. The amount includes Php27.9 billion in LGUs’ Special Shares in Proceeds of National Taxes and Php3 billion in Local Government Support Fund (LGSF), including Php2.8 billion under the controversial Grassroots Participatory Budgeting (GPB) scheme and Php200 million for ‘financial assistance to support various priority programs and projects’. The balance is comprised of a ‘death benefit fund’ for barangay officials worth Php50 million and shares in proceeds of fire code fees pegged at Php200 million. The Php31.1-billion LGU allocations is part of the Php48.1 billion that Department of Budget and Management (DBM) Sec. Butch Abad has admitted as lump sum in the 2015 National Expenditure Program. The remaining Php17 billion is composed of Php14 billion in disaster fund, Php1 billion in rehabilitation fund, and Php2 billion as presidential ‘contingent’ fund.

Using the power, influence and public resources at its disposal, the Aquino regime launched a well-orchestrated and apparently well-funded demolition job against its political foes to weaken them in time for 2016. Vice-President Binay, widely seen as the strongest presidential bet, has been the target of such campaign that started early last year but became all-out in the second half of 2014 with the filing of plunder cases at the Ombudsman and the launching of Senate investigations on the alleged overpricing of the Php1.56-billion Makati City Parking Building and Php1.33-billion Makati City Science High School building. In the course of the probes, other controversies were also raised such as the alleged overpriced birthday cakes given to Makati’s senior citizens and the so-called ‘Hacienda Binay’, a 350-hectare property in Batangas that Binay supposedly owns through dummy businessman Antonio Tiu. Sen. Antonio Trillanes, who is leading the Senate probe with Senators Alan Peter Cayetano and Koko Pimentel, at the start of year resumed the investigations, this time focusing on alleged anomalies related to Binay’s position as housing czar and even as the president of the Boy Scouts of the Philippines. The new round of probe on Binay is expected to last until May, or even longer.

UNA and Binay claimed it is LP, in particular Roxas and Senate President Franklin Drilon, who are behind the anti-Binay campaign purportedly called ‘Oplan Stop Nognog in 2016’. Allegedly, it was the helicopter of businessman and Roxas-backer Buddy Zamora that was used to probe the Hacienda Binay to gather evidence for the Senate and the media. It was not actually easy to see how the machinery of the Aquino regime is being used against Binay and even his supporters. As an offshoot of the Senate probe, the Bureau of Internal Revenue (BIR) has filed tax evasion cases against Antonio Tiu (Php73.34 million); his brother businessman and Binay campaign donor James Tiu and wife (Php39 million); and even the supplier of the Makati birthday cakes (Php46.6 million). Meanwhile, Antonio Tiu’s companies, which are publicly listed, are being ‘monitored’ by the Philippine Stock Exchange (PSE) and probed for ‘inconsistent disclosures’ by the Securities and Exchange Commission (SEC). The Department of Justice (DOJ), for its part, has also started its separate investigation of the cases against Binay even as the Senate and the Ombudsman are already looking into the alleged anomalies.

To be sure, all the allegations against Binay and even the pork barrel senators could be true. Given how deeply ingrained bureaucrat capitalism is in the country’s system of governance, Binay and company may have indeed used their position of power to enrich themselves and plunder the people’s money. They should be investigated and be held to account for their crimes against the country and the people. But the problem is they are being pinned down by the Aquino regime in the context of advancing its vested and narrow political agenda.


Consequently, while it aggressively pursues Binay and other electoral contenders, the Aquino government is also protecting its own officials and allies who are similarly facing allegations of big-time corruption. The pork barrel and DAP scandal, for instance, did not only involve Estrada, Revilla and Enrile but also prominent LP officials and administration allies like Butch Abad (whom Napoles claimed was her mentor in the pork barrel racket), Agriculture Sec. Proceso Alcala, TESDA Director Joel Villanueva, and Reps. Neptali Gonzales II and Niel Tupas Jr.

Just recently, Alan Purisima, a long-time Aquino friend (his mother Cory’s ex-Presidential Security Guards official whom he appointed as chief of the Philippine National Police or PNP), was accused of forging an anomalous contract with a courier service as well as having unexplained properties (e.g. a rest house in Nueva Ecija) not reflected in his statement of assets and liabilities (SALN). Despite strong public clamor for Purisima’s resignation, Aquino did not a lift a finger until the Ombudsman suspended the PNP head for six months due to cases filed against him. Despite the suspension, Aquino is still keen on keeping Purisima and refuses to appoint a new police chief. Another case is the Iloilo Convention Center (ICC) funded by Drilon’s pork barrel under the DAP. While the Senate Blue Ribbon committee was forced to initiate a probe on allegations of overpricing, it did not do so as aggressively as it does in the Binay investigations. This despite the revelation that Megaworld of tycoon Andrew Tan may have obtained special favors from the government and commercial benefits because of the ICC project.

These key political developments that further bared the trapo and elitist nature of the Aquino regime—coupled with the persistent and worsening economic exclusion of the people—feed the growing public discontent and continued erosion of Aquino’s legitimacy. IBON’s national survey last October 2014 showed that the net satisfaction on Aquino’s performance as President in the past three months is at negative 25.2% and there are no indications that he can recover lost ground in the remaining months of his presidency.

Deepening neocolonial ties

The signing of the Enhanced Defense Cooperation Agreement (EDCA) in April has raised the subservience of the Philippine government to the US to greater heights. The EDCA seems to crown the Aquino administration’s entire efforts in the last five years in deepening neocolonial ties with the US.

Negotiated in secrecy, the EDCA is a treaty that allows the US military to build facilities or “agreed locations” in existing camps or bases of the Armed Forces of the Philippines (AFP) effectively giving it a permanent and nationwide presence in the country. The agreement is in line with the military aspect of the US’s declared ‘pivot’ or ‘rebalancing’ to the Asia-Pacific because of the region’s growing importance to the economy and geopolitics of the US.

The signing of the controversial EDCA was met with strong criticism. Petitioners questioned the treaty before the SC for the treaty’s violation of the Constitution and Philippine sovereignty. The Constitution requires that military agreements like EDCA should be ratified by the Senate and recognized as a treaty by the US. The petitions at the SC, however, have not stopped the US and Philippine governments from detailing its plans to implement the agreement.

Calls to junk the lopsided EDCA and terminate the Visiting Forces Agreement (VFA) were underway when the brutal killing of transgender Jennifer Laude shocked the public. The suspect is US Private First Class Joseph Scott Pemberton, who was in Subic for bilateral military exercises involving 4,000 US troops. Subic Bay, a former US military base, is one of the areas to be used as “agreed locations” under EDCA.


To temper public reaction, Pemberton was transferred from the USS Peleliu to Camp Aguinaldo. But here it was discovered that the US serviceman was not in Philippine custody but in a US facility of the Joint US Military Advisory Group (Jusmag) inside the Armed Forces of the Philippines (AFP) headquarters. Critics called this a “de facto US military base” within Philippine territory, which is illegal under the Constitution.

The brutal crime resulted in public indignation and underscored again the unequal relations of the US and the Philippines in agreements like the VFA and Mutual Defense Treaty (MDT). Through the VFA and MDT, the US military has established its permanent presence in the country. The Laude killing offered an opportunity for the Philippine government to assert its sovereignty and mutual beneficial relations with the US, or at the minimum to support the call of some sectors to review these grossly unfavorable treaties. But the Aquino administration’s reaction displayed its height of puppetry to the US. It showed greater concern with defending the country’s unequal treaties with the US than bringing justice or upholding sovereignty. A few days after the crime, Pres. Aquino stated that the VFA is “not the culprit” but a necessity in national security, and that the incident is an “isolated case”. The AFP chief of staff was also quick to assure that the killing “will not affect our relationship with the US”.

There were efforts to appease the mounting calls to bring Pemberton to Philippine custody, but these were visibly half-hearted, such as the foreign affairs secretary’s offer to write a diplomatic note to Washington but with a notice that “the US may not necessarily agree to it.” Indeed after refusing to turn over the US soldier to Philippine jurisdiction after the local court indicted him, it was found out that Pemberton—despite his implication in the brutal slay—was even promoted to lance corporal.

Human rights violations and abuses perpetrated by US troops have intensified under the VFA. In fact, the latest crime brought back to light the case of ‘Nicole’, who was raped by US Lance Corporal Daniel Smith in 2005. Smith was convicted by a Makati regional court, but the Court of Appeals later overturned the ruling.

There are other cases of abuses involving US troops that are less prominent, such as the shooting of Buyong-buyong Isnijal by US soldier Reggie Lane in 2002 and Arsid Baharon in 2004. The involved soldiers in these cases were not prosecuted but whisked back to the US, all signalling the surrender of the country’s sovereignty and criminal jurisdiction. Around the world where there are US military bases, incidents of violations have been increasing. In Japan, for instance where there are 26,000 US soldiers based in Okinawa, criminal cases involving US troops have reached 5,584. In South Korea where 28,500 soldiers are stationed, 11 cases of rape by US soldiers have been recorded.

The human rights abuses and impunity in the cases against US troops give more urgency and stress to terminate the country’s lopsided agreements with the US. But the Philippine government is considered a strategic ally of the US in facilitating its ‘pivot’ toward the Asia-Pacific region. The Aquino government uses the VFA, MDT and now EDCA to justify the increasing US military forces and so-called exercises in the country.

Beyond the military aspect, the Aquino administration is allowing a larger extent of US policy interventions in the Philippines. US intervention in the country’s affairs reached a new level under the Partnership for Growth (PFG), an initiative that started in 2011. Under the PFG are various US agencies working with the Philippine government such as the US State Department, US Agency for International Aid (USAID), the Millennium Challenge Corporation (MCC), among others. Together they draw up and implement various efforts to further push US agenda in the Philippine economy, including more trade and investment liberalization, public-private partnerships, free trade agreements, and other policy reforms.


One of the initiatives being supported by the PFG is Cha-cha, which is being peddled by the Joint Foreign Chambers of Commerce led by the American Chamber of Commerce (AmCham). In 2013, the USAID and AmCham launched The Arangkada Philippines Project (TAPP), which lobbies for the removal of what they see as restrictive provisions in the Constitution. Given the full backing of US agencies and foreign chambers in amending the Constitution for their favor, it is not surprising that the moves for Cha-cha in Congress refuse to go away.

As seeming testament to the Aquino government’s deepening neocolonial relations with Washington, foreign aid from the US continues to increase. At US$1.9 billion for the years 2001-2014, US aid to the Philippines is one of largest in Southeast Asia. Almost 40% of this amount was for military and security assistance. Meanwhile, the US has exceeded Japan as the largest donor of official development assistance (ODA). Total ODA from the US from 1999 to 2013 reached US$1.39 billion or 25% of all ODA to the Philippines.

Calls for justice and accountability mount

The use of political repression against grassroots movements is intensifying as the Aquino regime faces growing discontent and opposition. Independent human rights group Karapatan has observed not only an increase in violations but also in the brutality and violence that these were done. It noted that in the past year, there were at least 15 victims who were tortured to death, beheaded and dumped in shallow graves.

From July 2010 to December 2014, the group recorded a total of 229 victims of extrajudicial killings, 225 cases of frustrated killings, 26 victims of enforced disappearance, 106 cases of torture, and 700 persons arrested and detained. (See Table 17)

It is notable that the more than half of the victims of extrajudicial killings were peasants (138 victims) followed by indigenous people (55). Karapatan reported the main perpetrators of these violations to be elements from the AFP, PNP, Citizen Armed Force Geographical Unit (CAFGU) and other paramilitary forces and private armies. The human rights group also reported that the number of political prisoners continues to rise. There are currently 504 political prisoners nationwide, 208 of them arrested under Pres. Aquino’s term. According to Karapatan, many of these political detainees face fabricated charges, some based solely on dubious witnesses’ accounts.

The latest report of the Center for Trade Union and Human Rights (CTUHR) shows that cases of violations on labor rights, housing, and civil liberties have affected 19,475 workers in 2014. These included violations in collective bargaining agreements, deaths due to unsafe working conditions, illegal dismissal of workers, union-busting and harassment, demolition of urban poor communities, among others. (See Table 18)

Meanwhile, the climate of impunity continues. For instance after five years since the Ampatuan massacre that killed 58 people including 32 journalists, majority of the suspects remain at large and witnesses were killed while the trial is locked in prolonged bail proceedings. Just recently, Sajid Islam Ampatuan, one of the accused, was granted bail despite evidence showing that Sajid was present when the attack was planned. The Ampatuan massacre is a key ground in the people’s campaign against impunity; a favorable decision will encourage more killings and embolden perpetrators to commit more human rights violations.

Similarly, 2014 marked the 10th anniversary of the Hacienda Luisita massacre, where seven farm workers were killed when police opened fire at the picket line. After a decade, no arrests have been made and justice remains elusive for victims. Even as the Hacienda Luisita farmers won the case when


the SC declared the distribution of the hacienda, maneuvers are still being done by the Cojuangco-Aquino clan through the Department of Agrarian Reform (DAR). Peasant families are being harassed and driven away, while the land that should be distributed continues to be exempted.

Building peace

Exclusive economics and undemocratic policies continue to deny the public of basic rights, and these are conditions that strengthen the armed movements in the country. The number of monitored encounters between the New People’s Army (NPA) of the Maoist Communist Party of the Philippines (CPP) and government forces remained high at 159 incidents. There were 268 casualties (killed and injured) on the government side. (See Annex)

Violations No. of Victims

Extrajudicial Killing 229

Enforced Disappearance 26

Torture 106

Rape a 5

Frustrated Extrajudicial Killing 225

Illegal Arrest without Detention 293

Illegal Arrest and Detention 700

Illegal Search and Seizure 294

Physical Assault and Injury 420

Demolition 20,745

Violation of Domicile 544

Destruction of Property 12,696

Divestment of Property 367

Forced Evacuation 46,861

Threat/Harassment/Intimidation b 91,381

Indiscriminate Firing 11,228

Forced/Fake Surrender 59

Forced Labor/Involuntary Servitude 174

Use of Civilians in Police and/or Military Operations as

Guides and/or Shield582

Use of Schools, Medical, Religious and Other Public

Places for Military Purpose149,134

Restriction or Violent Dispersal of Mass Actions, Public

Assemblies and Gatherings27,129

Table 17. Violation of Civil and Political Rights Under the

Aquino Administration, July 2010-December 30,

2014

a - all victims are minorsb - mostly communities in militarized areas

Source: KARAPATAN Alliance for the Advancement for People's RightsKaRapatan alliance for the advancement of people’s Rights


Case Title No. of Cases No. of Victims

Civil and Political Rights Violation 39 353

Extrajudicial Killing 2 2

Physical Assault/ Injury (includes mauling) 5 78

Threat, Harassment, Intimidation (includes surveillance, coercion and other forms) 5 138

Grave Threat 2 8

Arbitrary Arrest/ Detention 12 40

Fabrication of Criminal Charges due to political acts/belief or labor dispute 11 49

Divestment of Property 1 -

Destruction of Property 1 -

Economic, Social and Cultural Rights (ESCR) Violations a 67 19,182

Violation of the right to security of tenure

Illegal dismissal

Retrenchment / Closure 4 6,382

Dismissal due to labor dispute 11 767

Unsafe working condition

Death due to unsafe working condition 3 11

Violation of the right to freedom of association (FOA) and collectively bargain

Non-recognition of union 2 640

Union-busting 7 3,934

Harassment of unionists inside the workplace 10 2,125

Interference on trade union affairs 2 2,160

Anti-Union Discrimination 8 296

Collective Bargaining Agreement (CBA) violations and issues

Non-implementation of CBA 2 243

Bargaining in bad faith / Refusal to bargain 5 4,407

Total ESCR-FOA Violations on Workers 54 9,425

Other ESCR Violations

Demolition of urban poor communities 131,942 families/

9,757 individuals

Total Trade Union-Related Human Rights Violations (Labor and Civil Liberties) 84 9,718

Total Human Rights Violations (Labor, Housing Rights and Civil Liberties) 106 19,475

Source: Center for Trade Union and Human Rights

a - labor and housing rights; victims are affected workers unless stated

Note: Number of victims will not add up to total due to multiple reporting.

Table 18. Trade Union-Related Human Rights Violations, 2014


Despite the rampant human rights violations by the Aquino government, the National Democratic Front of the Philippines (NDFP) remains open to peace negotiations after more than three years of impasse. The Philippine government (GPH) and NDFP panels have started holding informal talks and drafted a joint agreement for the resumption of talks, which awaits the approval of Malacanang. The draft gives priority to the signing of the Comprehensive Agreement on Social and Economic Reforms (CASER), the next substantive agenda in the stalled peace negotiations. The agreement will move substantially after this has been signed, as the CASER recognizes that the basis for a lasting peace is addressing the socioeconomic problems of society, such as poverty and inequality.

Meanwhile, even as the Bangsamoro Basic Law (BBL) has been submitted to Congress in September 2014, critics point out that the agreement between the government and the the Moro Islamic Liberation Front (MILF) does not address the roots of armed conflict in Mindanao. The BBL implements the Comprehensive Agreement on the Bangsamoro (CAB), which the MILF and the Aquino government signed in March last year. It lays down the framework of establishing an autonomous political entity for the Bangsamoro and is hyped as an agreement that will finally bring peace to Mindanao.

Several Moro groups believe that the BBL compromises the rights of the Moro people and restricts the powers of the proposed Bangsamoro government. Moreover, the agreement is not expected to stop the national government nor business investors from exploiting natural resources in Moro areas for profitable ventures.

Armed Moro forces have already declared their disagreement to the peace deal. The Moro National Liberation Front (MNLF), for one, has declared that it will fight the implementation of the BBL because the peace deal between the MNLF and the government has yet to be enacted. As such, the BBL, despite the hype, does not guarantee that peace will reign in Mindanao.

Even as the MILF is seen as giving up its decades-long armed resistance, groups that adhere to the goal of having an independent Islamic state remain. The Bangsamoro Islamic Freedom Fighter (BIFF), for one, believes that the only way to resolve the decades-long Moro rebellion is to continue asserting their right to self-determination in their ancestral domain.

People’s movement remains the genuine force

The increasing discontent of the people and growing public pressure for real reforms continue to seriously challenge the legitimacy and consolidation of the Aquino regime. Sectors who have suffered the worst effects of the administration’s policies, such as peasants, workers and disaster survivors, have intensified calls for the President’s ouster. In contrast to the instability clouding the Aquino administration, the people’s movements remain unwavering in their fight for meaningful reforms.

The broad struggles of the people’s movement against the discredited policies and embedded corruption further pushed the Aquino administration to be increasingly defensive this year. Clearly this has shown that the people’s movement remains the only genuine opposition pushing for genuine reforms. Although this was an underlying and consistent force against the regime, there were several significant campaigns and struggles in 2014.

The SC’s indefinite extension of the temporary restraining order (TRO) against Meralco’s Php4.15 per kilowatt-hour rate increase for the second time in April may not have kept Meralco’s captive market unprotected from gradually increasing bills, but it prevented a radical spike in power rates that would


have hurt consumers’ pockets even more. Behind this is the urgent motion of petitioners including progressive partylist representatives, youth, teachers and women’s groups. They argued that the absence of a TRO would immediately lead to inflation, and rebutted a Meralco warning of power outages should it fail to collect generation costs from customers. Throughout the year, people’s sectors also remained vigilant about the arbitration between private water concessionaires and the MWSS as the former challenged the latter’s decision of cutting water rates as opposed to the companies’ petitions for a water rate hike. Water rights advocates also continued tackling the issue of mega-dams as well as the pending privatization of several water cooperatives nationwide.

Nationalists, religious leaders, prominent academicians and lawyers joined various sectors in filing a petition urging the SC to stop the implementation of the EDCA and terminate the VFA. This move adds to voices that encourage the Filipino people to continue the fight for sovereignty.

In August, members of various sectoral groups and church people launched the People’s Initiative, a signature campaign that aims to gather six million signatures nationwide to pass the Pork Barrel Abolition Act. The proposed act abolishes the presidential and congressional pork barrel, mandates line item budgeting, criminalizes the use of lump sum discretionary funds, among others. Beyond being a legal process, the campaign most of all is a means to make the public aware of the systemic corruption that pervades in government. At present, there are already 224 out of 234 legislative districts in 72 out of 82 provinces nationwide that have established volunteer networks gathering signatures against the pork barrel.

In November, more than 300 Lumads, farmers, rights advocates travelled from Mindanao to Manila to make known the worsening human rights situation in their region. Called the Manilakbayan, the group demanded a stop to the escalating militarization in Mindanao that has caused hundreds of residents to flee from their communities. The AFP is said to have deployed more than 50% of its troops in Mindanao, primarily to protect large-scale foreign mining and logging firms. Mining operations cover more than 311,000 hectares in Mindanao and most of these encroach in ancestral lands of the Lumads. The Manilakbayanis’ determination to bring their issues to national attention contributed largely not only to raising awareness about their plight but also to relating them with the injustices and violence experienced by the rest of the Filipinos under neoliberal globalization.

Meanwhile the victory of the NXP workers for substantial wage hike and regularization of almost 200 workers was crucial because it underscores the strength of unionism in defending workers’ rights. The union, one of the few remaining unions inside a special economic zone, also gathered the support of other workers and sectors in pushing for their demands. This year, workers’ groups also launched the campaign demanding for a Php16,000 minimum wage nationwide as a legitimate call against repressed wages and unjust mechanisms like the two-tiered wage system.

Relatedly, teachers across the nation have taken a step to forging unity as at least 10 of all regions now have regional teachers’ unions directly negotiating with the Department of Education in terms of advocating for the rights of teachers as working people. Alongside this, teachers, youth and students together with other educators’ groups have gradually advanced their study and engagement with regard to K to 12, the institutionalization of which has only further exposed the Philippine education system as being tied to the demands of the global market instead of being a fundamental tool for shaping a people that will push for sovereign national development.

Organized peasants, on the other hand, fought against another extension of the Comprehensive Agrarian Reform Program (CARPER) which expired in June 2014. This year, they also continued their assertion over their land amid increasing cases of massive land-grabbing and land use conversion such as in Hacienda Luisita and Clark Green City in Tarlac. The Kilusang Magbubukid ng Pilipinas


(KMP) also persisted in its campaign to reclaim the coco levy fund and assert that small farmers manage the funds. In January, the SC ruled on one of the coco levy cases involving Cojuangco’s San Miguel Corporation shares which will pave the way for the release of at least Php60 billion of funds to benefit the millions of coconut farmers in the country.

A challenging and hopeful new year

2015 promises to further heighten the already sharp contradiction between the people and the Aquino regime and the elite interests it represents. In just the first week of the New Year, the double whammy of huge increases in LRT and MRT fares and water rates greeted the people as the direct result of Aquino’s neoliberal PPP program. The issue of PPP and privatization and other neoliberal policies as well as issues of national sovereignty and patrimony and greater presence and intervention of foreign interest especially of US imperialism are seen to become more prominent in the coming months. Towards the end of the year, the Philippines will host the meeting of the Asia Pacific Economic Cooperation (APEC) and its expected push of the neoliberal agenda in the region along with the Trans-Pacific Partnership Agreement (TPPA) that the country hopes to join soon. The push for more liberalization through Cha-cha and more privatization through the PPP is expected to further intensify as proponents hope to achieve as much as they can before everyone’s focus, time and resources turn to the 2016 polls.

However, the coming year also presents new opportunities to highlight, advance and achieve victories for the pressing issues confronting the people. The recent visit of Pope Francis helped in making more prominent how the collective rights of the people, especially the poor who comprise the great majority, to live decently and with dignity are being systematically violated by the elitists regime’s flawed economic policies and programs and systemic corruption. The issue of scandalous inequality and the accountability of government amid worsening poverty and exclusion and natural disasters, have been further brought to the fore because of the Pope’s visit. This contributes to momentum for reforms.

Meanwhile, the expected intensification of factional conflict and maneuverings among the political elite as the 2016 polls draw near opens up additional avenues to highlight the people’s issues and challenge those seeking elective posts to provide alternative programs and policies that will replace those promoted by the Aquino regime. At the same time, the prospects of the peace talks between the NDFP and GPH being revived this year also provide another platform to pursue social and economic reforms that will truly address the chronic poverty and social injustice in the country that are at the roots of the armed conflict. All these new opportunities will not only further strengthen the people’s movement in their struggle for genuine change but will also increase their awareness that such changed future is achieved through their collective and democratic processes.


Annex

NPAAFP/PNP/

CAFGUCivilian b NPA

AFP/PNP/

CAFGUCivilian b NPA

AFP/PNP/

CAFGUCivilian b

2010 Jul-Dec 142 43 171 21 7 127 13 25 4 25

2011 Jan-Jun 171 47 194 9 22 145 6 24 6 13

2011 Jul-Dec 176 61 179 5 39 187 15 16 6 12

2012 Jan-Jun 197 98 179 18 24 188 14 34 1 21

2012 Jul-Dec 126 45 145 2 25 121 45 15 - 36

2013 Jan-Jun 207 31 241 11 16 226 31 39 28 5

2013 Jul-Dec 165 50 200 - 10 181 4 27 7 24

2014 Jan-Jun 158 49 212 7 9 237 12 17 2 41

2014 Jul-Dec 159 54 124 8 2 144 4 19 8 8

Total 1,501 478 1,645 81 154 1,556 144 216 62 185

Armed Confrontations between the NPA and Government Forces Under the Aquino Administration, July 2010-

December 2014

Captured

DateNumber of

Incidents

Dead a Wounded a

CAFGU - Citizens Armed Forces Geographical Unit

NPA - New People's Army

PNP - Philippine National Police

Source: Various publications monitored by IBON

a - These figures do not include an additional undetermined number due to incomplete reports.

b - These include civilians merely alleged or accused by the AFP as NPA members and supporters but still killed, wounded or illegally detained. Details can be

provided upon request.

AFP - Armed Forces of the Philippines



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